Equity Method Accounting: Pawn Corporation reported the following balances at Ja
ID: 2595041 • Letter: E
Question
Equity Method Accounting: Pawn Corporation reported the following balances at January 1, 2012:
On January 1, 2012, King Corporatin purchased 30% of Pawn Corporation's voting stock for $300,000 Cash. As a result, King has the ability to exercise significant influence over pawn. On this date, Pawn's equipment had a remaining useful life of 5 years, while the software's life was estimated at 10 years. During 2012, pawn declared and paid cash dividends of $20,000 and reported net income of $100,000 for the year. In addition, at year end, pawn's inventory balance includes $60,000 of product purchased from King where King recognized a 20% gross margin.
Required: Give all journal entries that King recorded during 2012 with respect to its investment. Also, what is the investment account balance that King will report at year end?
Item Book Value Fair Value Cash & Accounts Receivable 210,000 210,000 Equipment, net 240,000 300,000 Internally Developed Software 300,000 520,000 Accounts Payable (150,000) (150,000) Common Stock ($10 Par Value) (200,000) Additional Paid in Capital (60,000) Retained Earnings (340,000)Explanation / Answer
King books Investment in Pawns 300000 To Bank 300000 Investment in Pawns 30000 ( 100000 x 30% -asssuming net income is after depreciation , dividend ) TO Profit share in Pawns 30000 Bank 6000 To Dividend income 6000 ( 20000x 30% Internal Gain Dr 12000 ( 60000x 20% TO Investment in Pawns 12000 Investment account = 300000+30000-12000 = 318000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.