Problem 4-1 On January 1, 2011, Perelli Company purchased 90,000 of the 100,000

Question

Problem 4-1

On January 1, 2011, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock of Singer Company as a long-term investment. The purchase price of $4,954,500 was paid in cash. At the purchase date, the balance sheet of Singer Company included the following:

Additional data on Singer Company for the four years following the purchase are:

Perelli uses the partial equity method to account for its investment in Singer. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

2011

(To record the investment)

(To record dividend income)

(To record equity income (loss))

2012

(To record dividend income)

(To record equity income (loss))

2013

(To record dividend income)

(To record equity income (loss))

2014

(To record dividend income)

(To record equity income (loss))

Current assets $2,935,000 Long-term assets 3,884,600 Other assets 758,900 Current liabilities 1,571,600 Common stock, $20 par value 1,998,200 Other contributed capital 1,887,800 Retained earnings 1,614,100

Explanation / Answer

JOURNAL (Partial equity method) Date Particulars Debit Credit 2011 Investment in Singer Company $ 4,954,500.00 Cash $ 4,954,500.00 (To record the investment) Cash $      451,350.00 Investment in Singer Company $      451,350.00 (501,500 x 90%) (To record dividend income) Investment in Singer Company $ 1,803,060.00 Equity in Subsidiary - income $ 1,803,060.00 ($2,003,400 x 90%) (To record equity income (loss)) 2012 Cash $      451,350.00 Investment in Singer Company $      451,350.00 (501,500 x 90%) (To record dividend income) Investment in Singer Company $      429,120.00 Equity in Subsidiary - income $      429,120.00 ($476,800 x 90%) 2013 Cash $      451,350.00 Investment in Singer Company $      451,350.00 (501,500 x 90%) (To record dividend income) Equity in Subsidiary - Loss $      162,450.00 Investment in Singer Company $ 1,624,500.00 ($180,500 x 90%) (To record equity income (loss)) 2014 Cash $      451,350.00 Investment in Singer Company $      451,350.00 (501,500 x 90%) (To record dividend income) Equity in Subsidiary - Loss $      289,530.00 Investment in Singer Company $      289,530.00 ($321,700 x 90%) (To record equity income (loss))

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