4. On January 1, 2017, the ZCorporation acquired a 20% interest in D Company by

Question

4. On January 1, 2017, the ZCorporation acquired a 20% interest in D Company by purchasing 4,800 shares of its 24,000 outstanding shares of common stock. The acquisition price was $30 per share. On the date of purchase, D Company's net assets were as follows: Nondepreciable assets Depreciable assets Book Value S 60,000 Fair ValueDifference $14,000 36,000 $74,000 196,000 Total assets Total liabilities S 80,000 S 80,000 During 2017, D Company earned income of $70,000 and paid dividends of The depreciable assets have a ten-year remaining life and no residual value. $18,000. Required: Prepare all of the journal entries on Z Corporation's books to record the acquisition and subsequent events in 2017 related to the investment in D Company

Explanation / Answer

1. Jounral Entires in the books of Z corporation'

Calculation of purchase consideration (4800X30) = $144000

a. at the time of 20% share acquisition of D company

                                         Investment in D company A/c Dr. 144000

                                                  To cash/bank A/c                                  144000

                             

3. At the end of 2017

a. at the time of receving dividend income (18000X.20) = 3600

                         Cash/bank A/c Dr. 3600

                                 To Dividend Received A/c 3600

b. Transfer dividend into the profit and loss ac

                                Dividend Received A/c       3600

                                      To Profit and loss A/c          3600

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