Chapter 12 Investments in equity with sig. influence (2 pts) Saved As a long-ter

Question

Chapter 12 Investments in equity with sig. influence (2 pts) Saved As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc's 540,000 shares for $620,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC's net assets were equal During the year, AMC earned net income of $390,000 and distributed cash dividends of 20 cents per share. At year-end, the fair value of the shares is $659,000. Required 1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year 2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. points eBook Complete this question by entering your answers in the tabs below Required 1 Required 2 Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 3 4 Record the purchase of AMC Supplies shares for $620,000 as a long-term investment. Note: Enter debits before credits

Explanation / Answer

SOLUTION

(1)

(2)

S.No. Accounts title and Explanations Debit ($) Credit ($) 1. Investment in AMC shares 620,000 Cash 620,000 (To record the purchase) 2. Cash [20% * ($0.20 * 540,000)] 21,600   Investment (or Dividend) Revenue 21,600 (To record the receipt of the dividend) 3. Fair value adjustment ($659,000 - $620,000) 39,000 Net unrealized holding gain 39,000 (To recognize fair value)

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