At the beginning of Year One, Current Properties paid $1,000,000 for 25 percent
ID: 2601441 • Letter: A
Question
At the beginning of Year One, Current Properties paid $1,000,000 for 25 percent of the shares of Nealy Enterprises. Current immediately begins to exert significant influence over the operating decisions of Nealy. a. Nealy reported earnings of $400,000 during Year One. Record the appropriate journal entry for Current. b. Nealy paid a total cash dividend of $50,000 during October of Year One. Record the appropriate journal entry for Current when the company receives this dividend. c. At the end of Year One, what amount does Current report on its balance sheet as its investment in Nealy? What does Current report on its income statement as its investment income from Nealy? d. Nealy reported earnings of $440,000 during Year Two. Nealy paid dividends of $60,000 during Year Two. What is the balance of the Investment in Nealy at the end of Year Two? e. At the end of Year Two, Current sells its entire investment in Nealy for $1,200,000 in cash. Record the appropriate journal entry for Current.
Explanation / Answer
Answer to Part c
At end of year 1, amount to be reported in Balance Sheet is Invested amount + Earnings shares from Nealy - Dividend recived
= $ 1000000 + $ 100000 - $ 12500 = $ 1087500.
At end of year 1, amount to be reported in Income Statement is dividend amount recieved i.e. $ 12500
Answer to Part d
Amount to be reported in Balance Sheet is $ 1087500 + earnings share - dividend = $ 1087500 + $ 110000 - $ 15000 = $ 1182500.
Amount to be reported in Income Statement is dividend recieved i.e. $ 15000
S.no Particulars Debit Credit a Investment - Nealy Enterprises $ 1000000 Cash $ 1000000 (Investment made in Nealy Enterprises) b Income Summary A/c $ 400000 Retained Earnings $ 400000 (Income transferred) c Cash A/c $ 12500 Dividend Recieved A/c $ 12500 (Dividend recieved) d Cash A/c $ 1200000 Investment - Nealy Enterprises $ 1087500 Gain on Sales of Investment $ 12500 (Sale of investment on gain recorded)Related Questions
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