Accounting homework help. On January 1, 2015 the West Company made 2 purchases:
ID: 2585968 • Letter: A
Question
Accounting homework help.
On January 1, 2015 the West Company made 2 purchases: purchased 300 of the 1000 shares of Kardashian Company for $30,000. At this time Kardashian book value of assets was $80,000 any excess is attributable to a car with a 5 year life and no salvage. purchased 300 of the 100,000 shares of Madona Company for $30,000. All of Madonna's assets had a book value equal to market value any excess is attributable to goodwill 1-Jul Kardashian Company paid a $2 per share dividend 1-Aug Madonna Company paid a $1 per share dividend 31-Dec Kardshian Company reported income of $9000; its stock is selling for $101 per share 31-Dec Madonna Company reported income of $100,000; its stock is selling for $98 per share 2016 1-Jul Kardashian Company paid a $1 per share dividend 1-Aug Madonna Company announced they would not be paying any dividends this year 31-Dec Kardashian Company reported a loss of $3000; its stock is selling for $96 per share 31-Dec Madonna Company reported a loss of $40,000; its stock is selling for $101 pershare 2017 January 5th January 5th West sold its entire investment in Kardashian for $98 per share West sold its entire investment in Madonna for $102 per share REQUIRED MAKE ALL JOURNAL ENTRIES WEST MAKES IN CONNECTION WITH ITS INVESTMENT IN KARDASHIAN AND MADONNA FOR 2015, 2016 AND 2017... .DON'T FORGET TO RECORD WEST'S PURCHASE OF THE STOCK.Explanation / Answer
West company enjoys significant influence over the company with 30% share holding. Thus in this case, equity method of accounting shale be used.
Cost for acquisition is $30,000/-
Book value of net assets Is $80,000/- 30% of which amounts to $24,000/- thus the difference of $6000 is attributed to car with life of 5 yrs and nil salvage value .
Entry for acquisition:
Investment in kardashian co A/c DR 24,000
Car A/c Dr 6.000
To Bank 30,000
This car shall be depreciated using straight line method over its useful ife.
The dividend from the investee company shall be recognised as current earnings.
Bank a/c Dr $600
To Revenue A/c $600
Depreciation on car at 31-12-2015:
Depreciation a/c Dr $1200( $6000/5)
To Car a/c $1200
On 31-12-15, West Company recognises its share of income of the investee company,
Investment in Kardashian co A/c DR $2700( $9000*30%)
To Revenue reserves A/c $2700
During 2016, Dividend received @ $1 per share:
Bank a/c Dr $300
To Revenue a/c $300
Depreciation on car:
Depreciation a/c Dr $1200
To car a/c $1200
Recognisisng loss on 31-12-16
Revenue a/c DR 900 ($3000*30%)
To Investmnt in kardashian co a/c $900
2017:
On 05-jan-2017, sale of shares
Bank a/c Dr Dr $29,400( $98*300shares)
To Investmnt in kardashian co /c $25,800($24000+2700-900)
To Gain on sale a/c (Baancing figure) $3,600
Depreciation for 2017:
Depreciation A/c Dr $1200
To Car a/c $1200
Investment in 300 shares out of 100,000 shares of madonna company:
Here West company holds 0.3% shareholding. In this case, it is accounted using Fair value method of accounting where, shares are recorded at their fair value as on the closing date and unrecognised gains & losses on the change in fair value being reflected in REVENUE A/c.
1-1-2015
Purchase of shares:
Investment in Madonna Co a/c DR $30,000
To Bank a/c $30,000
( Since book value and market value is same, no goodwill arises)
Bank a/c Dr $ 300
To Revenue a/c $300.
31-12-2015: Fair vlue of share is $98.
Loss in fair value a/c Dr $600
To Investment in Madonna Co a/c $600
During 2016, no dividend.
31-12-2016: fair value of share $96.
Loss in fair value a/c Dr $600
To Investment in Madonna Co a/c $600
In 2017, sold shares for $102 per share
Bank a/c DR $30,600
To Investment in Madonna Co a/c $28,800
To gain on sale A/c $1800
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