Chapter 1 Problem 11-5
Equity method
1. Investment in associate 2,400,000
Cash 2,400,000
Acquisition cost 2,400,000
Net assets acquired (20% x 8,000,000) 1,600,000
Goodwill 800,000
2. Investment in associate 300,000
Investment income (20% x 1,500,000) 300,000
3. Memo – Received 2,000 shares as 10% stock dividend on
20,000 original shares. Shares now held, 22,000.
4. Investment loss 60,000
Investment in associate (20% x 300,000) 60,000
5. Cash (20% x 500,000) 100,000
Investment in associate 100,000
6. Cash (5,500 x 200) 1,100,000
Investment in associate 635,000
Gain on sale of investment 465,000
Sales price 1,100,000
Less: Cost of investment sold (5,500/22,000 x 2,540,000) 635,000
Gain on sale 465,000
Cost method
1. Investment in equity securities 2,400,000
Cash 2,400,000
2. No entry
3. Memo – Received 2,000 shares as 10% stock dividend.
Shares now held, 22,000.
4. No entry
5. Cash 100,000
Dividend income 100,000
6. Cash 1,100,000
Investment in equity securities (5,500/22,000 x 2,400,000) 600,000
Gain on sale of investment 500,000
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