During review of the adjusting entries to be recorded on December 31, 20X8, Gran

Question

During review of the adjusting entries to be recorded on December 31, 20X8, Grand Corporation discovered that it had inappropriately been using the cost method in accounting for its investment in Case Products Corporation. Grand purchased 100 percent ownership of Case Products on January 1, 20X6, for $62,000, at which time Case Products reported retained earnings of $12,000 and capital stock outstanding of $27,000. The differential was attributable to patents with a life of four years.

Income and dividends of Case Products were: Year Net income Dividends

20X6 $24000 $6000

20X7 $32000 $8000

20X8 $40000 $8000

Required: Prepare the correcting entry required on December 31, 20X8, to properly report the investment under the equity method, assuming the books have not been closed. Case Products' dividends were declared in early November and paid in early December each year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Investments 40,000

Earning on Investment 40,000

Dividends 8,000

Investments 8,000

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