Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purcha

Question

Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purchased 108,000 shares of Silva Company directly from one of the founders for a price of $48 per share. Silva has 300,000 shares outstanding including the Daniels shares. On July 2, Year 1, Silva paid $292,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $971,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva a. Provide the Ferguson Company journal entries for the transactions Involving its Investment In Sllva Company durlng Year 1 Year 1 Jan. 4 Year 1 July 2 Year 1 Dec. 31 b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock

Explanation / Answer

Journal entry :

b) December 31, year 1 balance of investment in silva company = 5184000-105120+349560 = 5428440

Date accounts & explanation debit credit Year 1 Jan 4 Stock investment (108000*48) 5184000     Cash 5184000 (To record Stock investment) Year 1 July 2 Cash (292000*36%) 105120    Stock investment 105120 (To record dividend) Year 1 Dec 31 Stock investment (971000*36%) 349560      Revenue from investment in silva company 349560 (To record net income)

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