On January 1, 2014, XYZ Company purchased 10,000 shares of the stock of Rayco, a

Question

On January 1, 2014, XYZ Company purchased 10,000 shares of the stock of Rayco, and did obtain significant influence. The investment is intended as a Long-term investment. The stock was purchased for $90,000, and represents a 50% ownership stake. Rayco made $25,000 of net income in 2014, and paid dividends of $10,000. The price of Rayco's stock increased from $10 per share at the beginning of the year, to $12 per share at the end of the year. Requirements: Prepare the January 1 and December 51 general journal entries for XYZ Company. How much should the XYZ Company report on the balance sheet for the investment in Rayco at the end of 2014?

Explanation / Answer

a 01-Jan-14 Invetsment in Ryco    90,000 To cash A/C         90,000 31-Dec-14 InvestMent in RYCO Company 7500 To Equity income in RYCO 7500 Equity income in RYCO 3000 To InvestMent in RYCO Company 3000 b In balance sheet Investment in RYCO at end of 2014 90000+7500-3000 = 94500

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