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ID: 2372097 • Letter: #

Question

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At a total cost of $660,000, Penn Corporation acquired 60,000

shares of Teller Corp. common stock as a long-term investment. Penn

Corporation uses the equity method of accounting for this

investment. Teller Corp. has 200,000 shares of common stock

outstanding, including the shares acquired by Penn

Corporation.

Journalize the entries by Penn Corporation to record the following

information:

a. Teller Corp. reports net income of $940,000 for the current

period.

b. A cash dividend of $2.50 per common share is paid by Teller

Corp. during the current period.

c. Why is the equity method appropriate for the Teller Corp.

investment?

Penn has a 60,000/200,000 or 30% stake so

a) DR Investment in Teller stock 282,000

CR Investment revenue 282,000

( 940,000*.3)

b) DR Cash 150,000

CR Investment in Teller stock 150,000

(60,000*2.50= 150,000)

c) Equity method is appropriate because a 20% -50% stake is held (significant influence).

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