4. EX.15-11.ALGO (Algorithmic) Equity Method for Stock Investment On January 4,

Question

4. EX.15-11.ALGO (Algorithmic) Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purchased 100,000 shares of Siliva Company directly from one of the founders for a price of $61 per share. Silva has 400,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $245,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $899,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva. a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1. Year 1 Jan. 4 Page 4 of Year 1 July 2 Year 1 Dec. 31 b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock 5. EX.15-15.BLANKSHEET.ALGO (Algorithmic)

Explanation / Answer

4-Jan Investment in stock of Silva 6100000           Cash 6100000 2-Jul Cash 61250 =245000*25%         Investment in stock of Silva 61250 31-Dec Investment in stock of Silva 224750 =899000*25%         Revenue from investment 224750 b Balance of investment in Silva company stock = 6100000+224750-61250= $6263500

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