Exercise 12-29 (Algorithmic) Equity Method On January 1, 2018, Core Corporation

Question

Exercise 12-29 (Algorithmic)
Equity Method

On January 1, 2018, Core Corporation acquired 40% of the 10,000 outstanding common shares of Prima Foods Inc. for $1,800,000, which equals the book value of Prima. On December 31, 2018, Prima reported a net profit of $440,000 and declared and paid a total dividend to shareholders of $180,000.

Required:

1. Prepare the journal entries made by Core to record the transactions related to its investment in Prima for 2018.

Feedback

Partially correct

2. Give the title and amount of each item (except cash) on the December 31, 2018, statement of financial position and statement of earnings of Core related to its investments in Prima. Name the section of each financial statement in which each item appears.

Jan. 1 Investments-Equity Method Cash (Record purchase of Prima shares) Dec. 31 Investments-Equity Method Investment Income-Equity Method (Record share of 2018 profit) Dec. 31 Cash Investments-Equity Method (Record share of 2018 dividend)

Explanation / Answer

(1)

Core corporation. Dr

(2)

Investment in associated company = $1800000

Retained Earning = (440000-180000)*40%

=$104000

Investment income = 180000*40% = 72000

1 Jan

Core corporation. Dr

1800000 To cash a/c 1800000 31 Dec Core Corporation a/c. Dr 176000 To profit in Prima foods A/c 176000 Cash A/c. Dr 72000 To Core corporation A/c 72000

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