Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014, fo

Question

Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014, for $230,600 although McKenzie's book value on that date was $1,970,000. McKenzie held land that was undervalued by $111,000 on its accounting records. During 2014, McKenzie earned a net income of $291,000 while declaring and paying cash dividends of $109,000. On January 1, 2015, Austin purchased an additional 30 percent of McKenzie for $693,930. McKenzie's land is still undervalued on that date, but then by $138,600 Any additional excess cost was attributable to a trademark with a 10-year life for the first purchase and a 9- year life for the second. The initial 10 percent investment had been maintained at cost because fair values were not readily available. The equity method will now be applied. During 2015, McKenzie reported income of $356,750 and declared and paid dividends of $134,000 Prepare all of the 2015 journal entries for Austin. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is not complete Transaction General Journal Debit Credit Investment in McKenzie 693,930 Cash 693, 930 2 2 Cash 10,900 Dividend income 10,900 Equity income investment in McKenzie 693,930 Cash 693,930 Investment in McKenzie 142,700 142,700 Cash 53,600 Investment in McKenzie 53,600 4 4 Dividends receivable 53,600 Investment in McKenzie 53,600

Explanation / Answer

Mac Kenzie General,Journal Particualrs Amount (Dr) Amount(Cr) Investment in Mac Kenzie $       693,930.00      To Cash $   693,930.00 (Being amount of Investment in Mac kenzie) Investment in Mac Kenzie=($138600*10%) $          13,860.00      To Retained Earnings-Prior Period adjustment $      13,860.00 (Being amount of Retained Earning share) Investment in Mac Kenzie $       147,000.00      To Equity Income-Investment in Mac Kenzie $   147,000.00 (Being amount of Equity Income) Dividend Receivable=($134000*40%) $          53,600.00      To Investment in Mac Kenzie   $      53,600.00 (Being amount of dividend receivable for 40% share) Cash $          53,600.00        To Dividend Receivable $      53,600.00 (Being amount of dividend received) ( Equity Income-Investment in Mac Kenzie=($2250+$750) $            3,000.00       To Investment in Mckenzie $        3,000.00 (Being amount of Equity income )

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