At the beginning of 2013, Zylon Ltd. acquired 15% of the voting shares of Hendri

Question

At the beginning of 2013, Zylon Ltd. acquired 15% of the voting shares of Hendrick Co. a public company for $150,000. Zylon does not have any significant influence over Hendrick.. In 2013, Hendrick earned net income of $70,000 and paid dividends of $40,000. The fair value of the 15% at the end of 2013 was $160,000. In 2014, Hendrick earned net income of $80,000 and paid dividends of $100,000. The fair value of the 15% at the end of 2014 was $157,000. At the end of 2014, what journal entry should Zylon make regarding its investment in Hendrick Co. in net income?

a) DR Investment in Hendrick 12,000

CR Investment income 12,000

b) DR Investment in Hendrick 80,000

CR Investment income 80,000

c) No entry is required

d) DR Investment in Hendrick 15,000

CR Investment income 15,000

Explanation / Answer

Particulars Working Amount Initial Investment 150000 Less: per aquisition dividend 0 Net value of investments 150000 2013 end Fair Value= book value or market which is less 150000 2014 end Fair Value= book value or market which is less 150000 Hence No entry is required since opening and closing Balance is 150000

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