Bradster Co. acquired 20% of the outstanding common stock of Curly Co. on Januar

Question

Bradster Co. acquired 20% of the outstanding common stock of Curly Co. on January 1, 2011, by paying $800,000 for the 40,000 shares. Curly declared and paid $.80 per share cash dividends on June 15, and December 15, 2011. Curly reported net income of $360,000 for the year.

Required
A. Prepare journal entries for Bradster assuming Curly cannot exercise significant influence over Curly. (Use the cost method)

B. Prepare journal entries for Bradster assuming Curly can exercise significant influence over Bradster. (Use the equity method).

Explanation / Answer

Answer:A. Journal Entry:

For Bradster assuming Curly cannot exercise significant influence over Curly. (Use the cost method)

Jan.1 Stock Investment A/C Dr. $ 800000

              To Cash A/C    $ 800000

June.15 Cash A/C Dr. $ 32000

                To Dividend Revenue A/C    $ 32000

Dec 15    Cash A/C Dr. $ 32000

                To Dividend Revenue A/C    $ 32000

Revenue A/C Dr. $360000

    To Income summary A/C     $360000

Answer:B) Prepare journal entries for Bradster assuming Curly can exercise significant influence over Bradster. (Use the equity method).

1 jan Investment in Bradster Co.A/C Dr. $800,000
          To Cash A/C                                          $800,000
15 june    Investment in Bradster Co.A/C Dr. $32,000
                          To Equity in investee income A/C                   $32,000

15 dec      Investment in Bradster Co.A/C Dr. $32,000
                          To Equity in investee income A/C                   $32,000

Revenue A/C Dr. $360000

    To Income summary A/C     $360000

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