Equity Method On January 2, 2015, Winstead & Company purchased 1,000,000 shares
ID: 1172155 • Letter: E
Question
Equity Method
On January 2, 2015, Winstead & Company purchased 1,000,000 shares of the Secrest Company for $32 million. The investment represented 40 percent of the outstanding common shares of The Secrest Company. During 2015, Secrest reported net earnings of $1.05 per share and paid a cash dividend of $0.35 per share.
During 2016, Secrest reported net earnings of $1.50 per share and paid a cash dividend of $0.40 per share.
Calculate the book value of Winstead’s investment in Secrest as of December 31, 2015, and December 31, 2016.
2015 $Answer 2016 $AnswerExplanation / Answer
JOURNAL ENTRY Date Account Debit Credit .January2, 2015 Investment in Secrest Company $32,000,000 Cash $32,000,000 .December 31, 2015 Investment in Secrest Company $1,050,000 (1000000*1.05) Equity in Secrest company income $1,050,000 .December 31, 2015 Cash $350,000 (1000000*0.35) Investment in Secrest Company $350,000 .December 31, 2016 Investment in Secrest Company $1,500,000 (1000000*1.5) Equity in Secrest company income $1,500,000 .December 31, 2016 Cash $400,000 (1000000*0.40) Investment in Secrest Company $400,000 2015 Book value of Investment in Secrest Company as on December 31, 2015 $32,700,000 (32000000+1050000-350000) 2016 Book value of Investment in Secrest Company as on December 31, 2015 $33,800,000 (32700000+1500000-400000)
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