Question

On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $500,000. For the year ended December 31, Fain earned income of $140,000 and paid dividends of $50,000. Journalize the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.

Answer 1

The journal entries are as follows:

(i) On January 2,

Investment in Fain Company A/c Dr. $500,000

To cash $500,000

(acquisition of 40% of stock of Fain Co)

(ii) On December 31,

Investment in Fain Company A/c Dr. $56,000

To Equity in Investee Income $56,000

(accrual of 40% of earnings of Investee Co)

(iii) On December 31,

Cash A/c Dr. $20,000

To Investment in Fain Company $20,000

(dividends received from Fain Company)