Mr. Hansen\'s purchase of the stock of LifePath Fitness was done through his bus

Question

Mr. Hansen's purchase of the stock of LifePath Fitness was done through his business. The stock investment has always been accounted for using the cost method on his firm's books. However, early in 2019 he decided to take his company public. He is preparing an IPO (initial public offering), and he needs to have the firm's financial statements audited. One of the issues to be resolved is to restate the stock investment in LifePath Fitness using the equity method since Mr. Hansen's ownership percentage is greater than 20%.

Instructions

(e)  (1)  Give the entries that would have been made on Hansen's books if the equity method of accounting for investments had been used from the initial investment through 2018. Assume the following data for LifePath.

(2)  

Compute the balance in the Stock Investment account (as it relates to LifePath Fitness) at the end of 2018.

2016 2017 2018 Net income $30,000 $70,000 $105,000 Total cash dividends $?2,100 $20,000 $?50,000

Explanation / Answer

Note: I have assumed that the Investment is 20% as it is not mentioned in the question.

2.

Please note the Value of Investment is not Given in the question so it is blank while computation.

Please comment me the missing details. I will update the answer if required by you.

Account Description Debit Credit 2016 Cash            420.00 Investment In Lifepath            420.00 (Being cash dividend of $3 per share received) 2016 Investment In Lifepath        6,000.00 To Revenue from Investment        6,000.00 (Being Income from Investment Recognised) 2016 Cash        4,000.00 Investment In Lifepath        4,000.00 (Being cash dividend of $3 per share received) 2016 Investment In Lifepath      14,000.00 To Revenue from Investment      14,000.00 (Being Income from Investment Recognised) 2016 Cash      10,000.00 Investment In Lifepath      10,000.00 (Being cash dividend of $3 per share received) 2016 Investment In Lifepath      21,000.00 To Revenue from Investment      21,000.00 (Being Income from Investment Recognised)

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