P 1 On January 1, Payton Incorporated acquired 32% of the outstanding voting sha

Question

P 1 On January 1, Payton Incorporated acquired 32% of the outstanding voting shares of Mannin Company at a cost of $2,196,000 by acquiring 72,000 of the total 225,000 outstanding shares at a cost of $30.50 per share. During the year, Mannin reported $1,238,000 in net income and declared and paid $1.15 per share dividends. At the end of the year, the shares were trading at $33.50 per share. At the time of acquisition, the book value of Mannin's net assets equaled its market value. Requirements: a) Prepare the journal entry to record the acquisition of the investments. b) Prepare the journal entry to record the end of year 1 entry GENERAL JOURNAL Page 1 POST REF DESCRIPTION DEBIT CREDIT DATE

Explanation / Answer

a)

Journal entry to record the acquisitions of investments:

Investment in Mannin Company Dr 2196000 (72000*30.5)

Cash Cr 2196000

b)

Net income reported = 1238000

Apportion of Payton Company in net profit = 1238000*32% = 396160

Journal entry for net profit earned:

Investment in Mannin Company Dr 396160

Share in income of Mannin company Cr 396160

Journal entry for receipt of dividend:

Cash Dr 82800 (72000*1.15)

Investment in Mannin Company Cr 82800

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