James (investor) Corporation acquires 25% of the common shares of Heck (investee

Question

James (investor) Corporation acquires 25% of the common shares of Heck (investee) Company for $200,000 on January 1, 2010.  For 2010, Heck reports net income of $70,000 and paid dividends of $20,000.  

Instructions

(a)   Prepare the entries for these transactions in the space provided below.

(b)   Compute the balance in the stock investment account.

(a)

Date

Account

Debit

Credit

(b)

  

Date

     

Account

     

Debit

     

Credit

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

  

Explanation / Answer

(a)Prepare the entries for these transactions in the space provided below.

January-1,2010

Debit STOCK INVESTMENT ACCOUNT [HECK COMPNAY] = 200000

Credit Cash = 200000

DEBIT CASH [20000*25%] = 5000

CREDIT DIVIDEND RECEIVED FROM HECK COMPANY = 5000

(b)Compute the balance in the stock investment account.

BALANCE IN STOCK INVESTMENT ACCOUNT = 200000+[25%OF(70000-20000)]

=200000+12500

=212500

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