Question

Windsor Locomotive Corporation purchased for $550,000 a 40% interest in Lopez Railways, Inc. This investment enables Windsor Locomotive to exert significant influence over Lopez Railways. During the year, Lopez Railways earned net income of $149,000 and paid dividends of $27,000. Prepare Windsor Locomotive’s journal entries related to this investment.

Answer 1

Journal Entries

Dr. Investment in Lopez Railways Inc. $600,000

Cr. Cash $600,000

Dr. Investment in Lopez Railways Inc $59,600

Cr. Income of Investment in Lopez Railways Inc $59,600

Dr. Cash $10,800

Cr. Investment in Lopez Railways Inc $10,800

Step-by-step explanation:

As Windsor Locomotive Corporation has purchased 40% interest in Lopez Railway Inc.Lopez Inc. is classified as the associate company of Windsor Corp.

Share in net Income = $149,000 x 40% = $59,600

Share In Dividend = $27,000 x 40% = $10,800