(b) Prepare the journal entries for Farwell Company for 2014, assuming Farwell c

Question

(b) Prepare the journal entries for Farwell Company for 2014, assuming Farwell can exercise significant influence over Ingold. (Use the equity method.)
(c) The board of directors of Farwell Company is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2014.

Problem E-4 (Part Level Submission) Farwell Company acquired 30% of the outstanding common stock of Ingold Inc. on January 1, 2014, by paying $2,033,200 for 59,800 shares. Ingold declared and paid a $0.20 per share cash dividend on June 30 and again on December 31, 2014. Ingold reported net income of $814,100 for the year. (a) Prepare the journal entries for Farwell Company for 2014, assuming Farwell cannot exercise significant influence over Ingold. (Use the cost method.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

a. Cost method Date Particulars Dr. Cr. 01.01.2014 Investment in Ingold Inc A/c $            2,033,200 Cash A/c $                                 2,033,200 30.06.2014 Cash A/c $                  11,960 Dividend received A/c $                                       11,960 31.12.2014 Cash A/c $                  11,960 Dividend received A/c $                                       11,960 b. Equity method Date Particulars Dr. Cr. 01.01.2014 Investment in Ingold Inc A/c $            2,033,200 Cash A/c $                                 2,033,200 30.06.2014 Cash A/c $                  11,960 Investment in Ingold Inc A/c $                                       11,960 31.12.2014 Cash A/c $                  11,960 Investment in Ingold Inc A/c $                                       11,960 30.12.2014 Investment in Ingold Inc A/c $                244,230 Share of results in associates company A/c $                                     244,230 Part c Cost method Investment in Ingold Inc $      2,033,200.00 (Balance Sheet) Dividend Revenue(11960*2) $            23,920.00 (Income Statement) Equity method Investment in Ingold Inc $      2,253,510.00 (Balance Sheet) Share of results in associates company $          244,230.00 (Income Statement)

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