4. On 1/1/2017, The X Company purchased 70% of the Y Company for $17,000,000. It

Question

4. On 1/1/2017, The X Company purchased 70% of the Y Company for $17,000,000. It prepares consolidated financial statements that include the Y Company. The X Company also prepares financial statements in which it accounts for its investment in the Y Company using the equity method During 2017, the Y Company earned $1,000,000 and paid dividends of $400,000 On 12/31/2017 shares of Y Company that were publicly traded implied a total market value of Y Company of $28,000,000 a. Make the JE to record the purchase of Y Company b. Make the JE to record Y Company 2017 income, if necessary c. Make the JE to record the dividends received from Y Company in 2017 d. Make the JE to record the change in the market value of X Company's investment in Y Company as of 12/31/2017, if necessary

Explanation / Answer

a)

Investment in Y Dr 17000000

Cash Cr 17000000

b)

Investment in Y Dr 700000 (1000000*70%)

Equity income in Y Cr 700000

c)

Cash Dr 280000 (400000*70%)

Investment in Y Cr 280000 (400000*70%)

d)

Total market value of Y company = 28000000

Share of X comapny in Y = 28000000*70% = 19600000

Current value of investment in Y at cost by X company = 17000000+700000-280000 = 17420000

Increment in the value of investment in Y = 19600000 - 17420000 = 2180000

Journal:

Investment in Y Dr 2180000

Equity income in Y Cr 2180000

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.