On January 1, 2018, Alamar Corporation acquired a 39 percent interest in Burks,

Question

On January 1, 2018, Alamar Corporation acquired a 39 percent interest in Burks, Inc., for $228,000. On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $327,000. During 2018, Burks reported net income of $79,000 and declared and paid cash dividends of $29,000. Alamar sold inventory costing $26,000 to Burks during 2018 for $42,000. Burks used all of this merchandise in its operations during 2018. Prepare all of Alamar's 2018 journal entries to apply the equity method to this investment.

Explanation / Answer

Journal Entries

January 1, 2018

Investment in Burks Inc. Dr 127530 (327000*39%)

Goodwill Dr 100470

Cash Cr 228000

Receipt of dividend

Cash Dr 11310 (29000*39%)

Dividend Income Cr 11310

Sale of inventory

Cash Dr 42000

Sales Cr 42000

(Burks has used all of this merchandise in its operations during 2018, so, it will be considered as normal sale by Alamar Corporation)

Share of net profit

Investment in Burks Inc. Dr 30810 (79000*39%)

Share of profit of Burks Inc. Cr 30810

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