Built Problems 6 Help As a long-term investment, Painters\' Equipment Company pu
ID: 2554291 • Letter: B
Question
Built Problems 6 Help As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc.'s 480,000 shares for $560 000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC's net assets were equal. During the year, AMC earned net income of $330,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $593,000. Required: 1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. 2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assume no significant influence was acquired. Prepare the appropriate the year. (f no entry is jounal entries from the purchase through the end of required for a transactionVevent, select "No journal entry required" in the first account field.) Journal entry worksheet Record the purchase of AMC Supplies shares for $560,000 as a long-termExplanation / Answer
1. This would be accounted for at fair value through net income
Investment in AMC shares $ 560,000
Cash $ 560,000
(to record the purchase)
Cash [20% x ($0.25 x 480,000)] $ 24,000
Investment (or dividend) revenue $ 24,000
(to record the receipt of dividend)
Fair value adjustment ($593,000 - $560,000) $ 33,000
Net unrealized holding gain - NI $ 33,000
(to recognize fair value)
No entry related to net income of AMC.
2. Investment in AMC shares $ 560,000
Cash $ 560,000
(to record the purchase)
Cash [20% x ($0.25 x 480,000)] $ 24,000
Investment in AMC shares $ 24,000
(to record the receipt of dividend)
Investment in AMC shares (20% x $330,000) $ 66,000
Investment revenue $ 66,000
(to recognize investor's share of AMC net income)
No entry related to fair value.
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