On July 1, 2007, Munns Company purchased forcash 40% of the outstanding capital

Question

On July 1, 2007, Munns Company purchased forcash 40% of the outstanding capital stock of Huber Corporation.Both Munns and Huber have a December 31 year-end. HuberCorporation, whose common stock is actively traded on the AmericanStock Exchange, paid a cash dividend on November 15, 2007, to MunnsCompany and its other stockholders. It also reported its total netincome for the year of $920,000 to Munns Company. How should Munns Company report the abovefacts in its December 31, 2007, balance sheet and its 2007 incomestatement. On July 1, 2007, Munns Company purchased forcash 40% of the outstanding capital stock of Huber Corporation.Both Munns and Huber have a December 31 year-end. HuberCorporation, whose common stock is actively traded on the AmericanStock Exchange, paid a cash dividend on November 15, 2007, to MunnsCompany and its other stockholders. It also reported its total netincome for the year of $920,000 to Munns Company. How should Munns Company report the abovefacts in its December 31, 2007, balance sheet and its 2007 incomestatement.

Explanation / Answer

When Munns Company purchase 40% of capital stock, journal entryis July 1    Investment      XXX                       Cash                XXX Investment Account is belongs to the Long-term Investment inBalance Sheet When they receive dividends Cash                            XXX    Investment                      XXX It has no influence in income statement. At the year end, Huber company report a 920,000 net income Investment                         368,000     InvestmentIncome                         368,000 Investment income will be recorded in income statement **920,000 * 40% = 368,000

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