Assignment Problem Pat Company paid $500,000 for an 75 percent interest in Soar

Question

Assignment Problem Pat Company paid $500,000 for an 75 percent interest in Soar Company on July 1, 2018, when Soar had total equity of $250,000. Soar Company reported earnings of $25,000 for 2018 and declared dividends of $42,000 on November 1,2018. Required: Give the entries to record these facts on the books of Pat Company: 1 Assuming the Pat Company uses the cost method of accounting for its subsidiaries. (Any difference between investment cost and book value acquired is to be assigned to equipment and amortized over a 10-year period.)

Explanation / Answer

1)

2)

equipment on acquisition :Amount paid - share in equity of soar at time of acquisition

     = 500000- [250000*.75]

       = 500000- 187500

       = 312500

Depreciation per year = 312500/10 = 31250

Date Account Debit credit july 1 2018 Investment in soar company 500000 cash 500000 [being investment made] November 1 2018 Dividend receivable 31500 Dividend revenue 31500 [being dividend declared by soar recorded 42000*.75]

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