On January 1, 2014, Palsoe Corp. acquired 30 percent (13,000 shares) of Nostay S

Question

On January 1, 2014, Palsoe Corp. acquired 30 percent (13,000 shares) of Nostay Services Inc. com-mon stock for $1,300,000 as a long-term investment. Data from Nostay's 2014 financial statements include the following:

Net income . ........................................... $330,000

Less cash dividends paid . ............................. 160,000

Increase in retained earnings . ........................ $170,000

The market value of Nostay Services Inc. common stock on December 31, 2014, was $98 per share. Palsoe does not have any other noncurrent investments in securities. Prepare the necessary journal entries for Palsoe's investment in Nostay Services Inc. common stock under

(1) the cost method classified as available-for-sale securities.

(2) the equity method

Explanation / Answer

Journal Entries-

(1) The cost method classified as available-for-sale securities

2 Equity Method-

Date Particular L.F $ $ 01-01-2014 Available for sale security A/c            Dr. 1300000                                            To Cash A/c 1300000 To record the purchase of stock 13,000 shares of Nostay Services Inc. 12/31/2014 Cash A/c                                                        Dr. 48000                                    To Dividend income      A/c 48000 To record dividend income of 30% of $160,000 12/31/2014 Unrealized gain/loss-OCI 26000                                                                     Available for sale security A/c             26000 To record decrease in valud of share of $2 per share for 13000 shares

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