On January 1, 2016, Tiger Company purchased 6,720 shares of Eagle Corporation’s

Question

On January 1, 2016, Tiger Company purchased 6,720 shares of Eagle Corporation’s common stock when Eagle had 22,400 shares outstanding. On that date, the following information pertained to Eagle:

Eagle Corporation
Balance Sheet
January 1, 2016

Depreciable Assets (remaining life, 8 years)
Book Value     Fair Value
$600,000.00   $620,000.00
Other non-depreciable assets
290,000.00      300,000.00
Total
$890,000.00    $920,000.00
Liabilities
$300,000.00     $330,000.00
Shareholders’ equity
590,000.00
Total
$890,000.00

During 2016, Eagle earned net income of $120,000 and paid total dividends of $48,000.

Required:
Prepare the journal entries of Tiger related to its share of Eagle’s net income and dividends in 2016.

Explanation / Answer

Solution:

Journal Entries - Tiger Company Date Particulars Debit Credit 31-Dec-16 Investment in Eagle's Corporation Dr $36,000.00             To Investment Income ($120,000*30%) $36,000.00 (Being share of income recoganised for investment in Associate enterprise - Eagle's corporation) 31-Dec-16 Cash Dr ($48,000*30%) $14,400.00             To Investment in Eagle's Corporation $14,400.00 (Being dividend received from Associate enterprise - Eagle's corporation)

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