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On January 1, 2010, Alsip Corp. acquired 30 percent (13,000 shares) of Stone Ser

ID: 2428451 • Letter: O

Question

On January 1, 2010, Alsip Corp. acquired 30 percent (13,000 shares) of Stone Services Inc. common stock for $1,300,000 as a long-term investment. Data from Stone's 2010 financial statements include the following:

Net income ............................................ $330,000
Less cash dividends paid .............................. 160,000
Increase in retained earnings ......................... $170,000

The market value of Stone Services Inc. common stock on December 31, 2010, was $98 per share. Alsip does not have any other noncurrent investments in securities.


Prepare the necessary journal entries for Alsip’s investment in Stone Services Inc. common stock under

(1) the cost method classified as available-for-sale securities.
(2) the equity method.

Explanation / Answer

1) Cost methode: Dr $ Cr $ Jan1,2010 Investment in equity of Stone services 1300000       Cash 1300000 (Being invested in equity shares of Stone services) Dec 31,2010 Cash 48000      Dividends ( Investment revenue) 48000 (Being Return received on Investment160000* 30%) 2) Equity methode: Jan1,2010 Investment in equity of Stone services 1300000       Cash 1300000 (Being invested in equity shares of Stone services) Dec 31,2010 Cash 48000      Dividends ( Investment revenue) 48000 (Being Return received on Investment) Dec 31,2010 Investment in equity of Stone services 51000        Investment Revenue 51000 (Being retained earnings increased) Dec 31,2010 Decreased in investment value 26000        Investment in equity of Stone services 2600 (Being investment market price is decreased) Thank you.... Cost methode: Dr $ Cr $ Jan1,2010 Investment in equity of Stone services 1300000       Cash 1300000 (Being invested in equity shares of Stone services) Dec 31,2010 Cash 48000      Dividends ( Investment revenue) 48000 (Being Return received on Investment160000* 30%)

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