Question

Rod Corporation purchased 100 percent ownership of Stafford Corporation on January 1, 20X4, for $65,000, which was $10,000 above the underlying book value. Half the additional amount was attributable to an increase in the value of land held by Stafford, and half was due to an increase in the value of equipment. The equipment had a remaining economic life of five years on January 1, 20X4. During 20X4, Stafford reported net income of $12,000 and paid dividends of $4,500.

Required:Prepare the journal entries that Rod Corporation recorded during 20X4 related to its investment in Stafford Corporation, assuming Rod uses the equity method in accounting for its investment.need journal entries for the following:Record purchase of Stafford Stock.Record dividend from Stafford.Record equity-method income.Record amortization differential assigned to equipment.

Answer 1

Answer and Explanation:

Rod Corporation

General Journal

1.

Dr Investment in Stafford Corporation Stock 65,000

Cr Cash 65,000

2.

Dr Cash 4,500

Cr Investment in Stafford Corporation Stock 4,500

3.

Dr Investment in Stafford Corporation Stock 12,000

Cr Income From Stafford Corporation 12,000

4.

Dr Income From Stafford Corporation1,000

Cr Investment in Stafford Corporation Stock 1,000