On January 1, 2015, Bactin Corporation acquired 10% of Oakton Company for $100,0
ID: 2499335 • Letter: O
Question
On January 1, 2015, Bactin Corporation acquired 10% of Oakton Company for $100,000. On that date, the total book value and fair value of Oakton's net assets was $900,000. Any difference between cost and fair value is attributable to goodwill. In 2015, Oakton reported net income of $60,000 and paid dividends of $30,000. On January 1, 2016, Bactin Corporation bought another 10% of Oakton for $100,000, and on that date, the book value and fair value of Oakton's net assets still was $900,000 (the fair value of Oakton did not change during 2015). Bactin concluded that its 20% ownership now allowed it to significantly influence Oakton's operations. In 2016, Oakton reported net income of $80,000 and paid dividends of $40,000.
Required:
Prepare all journal entries for Bactin for 2015 and 2016, assuming no change in fair value of the Oakton stock during that time period.
Explanation / Answer
On January 1, 2015, Bactin Corporation acquired 10% of Oakton Company for $100,000. On that date, the total book value and fair value of Oakton's net assets was $900,000. Any difference between cost and fair value is attributable to goodwill.
Journal Entries: DEBIT CREDIT
January 1, 2015 Investment in Oakton company $90,000
Goodwill $10,000
To Cash A/c $100,000
December 31, 2015 Cash A/c $3,000
To Dividend Income $3,000
On January 1, 2016, Bactin Corporation bought another 10% of Oakton for $100,000, and on that date, the book value and fair value of Oakton's net assets still was $900,000.
Journal Entries: DEBIT CREDIT
January 1, 2016 Investment in Oakton company $90,000
Goodwill $10,000
To Cash A/c $100,000
December 31, 2016 Cash A/c $8,000
To Dividend Income $8,000
(Being holding is now 20% so dividend is 20% of dividend amount $40,000)
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