Valix Finacc vol 1 Problem 11-8

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 1 Problem 11-8

2006

Jan.    1   Investment in equity securities                                           1,000,000

                       Cash                                                                                                   1,000,000

Dec. 31   Cash (15% x 300,000)                                                   45,000

                       Dividend income                                                                                   45,000

2007

Dec. 31   Cash (15% x 400,000)                                                   60,000

                       Dividend income                                                                                   60,000

2008

Jan.   1   Investment in associate                                                      3,000,000

                       Cash                                                                                                   3,000,000

          1   Investment in associate                                                          75,000

                       Retained earnings                                                                                  75,000

                                                                                                           

               Investment income – Equity method (2006 and 2007)                                 180,000

                     (15% x 500,000 + 700,000)                                                                  

               Dividend income – Cost method (2006 and 2007) (45,000 + 60,000)           105,000

               Cumulative effect of change to equity                                                         75,000

1   Investment in associate                                                      1,000,000

                      Investment in equity securities                                                              1,000,000

                                    (Reclassification)        

                                                                                                     

Dec. 31  Investment in associate                                                        360,000

                       Investment income (40% x 900,000)                                                      360,000

         31  Cash (40% x 600,000)                                                             240,000

                       Investment in associate                                                                                   240,000