Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014, fo

Question

Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014, for $230,600 although McKenzie's book value on that date was $1,970,000. McKenzie held land that was undervalued by $111,000 on its accounting records. During 2014, McKenzie earned a net income of $291,000 while declaring and paying cash dividends of $109,000. On January 1, 2015, Austin purchased an additional 30 percent of McKenzie for $693,930. McKenzie's land is still undervalued on that date, but then by $138,600 Any additional excess cost was attributable to a trademark with a 10-year life for the first purchase and a9- year life for the second. The initial 10 percent investment had been maintained at cost because fair values were not readily available. The equity method will now be applied. During 2015, McKenzie reported income of $356,750 and declared and paid dividends of $134,000 Prepare all of the 2015 journal entries for Austin. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is not complete. No Transaction General Journal Debit Credit Investment in McKenzie 693,930 Cash 693,930 230,600& 2 2 Investment in McKenzie Cash 230,600 Cash 10,900 Dividend income 10,900 Investment in McKenzie 693,930 Cash 693,930 Investment in McKenzie 1427000 142,700 4 4 Dividends receivable 53,600 Investment in McKenzie 53,600 Cash 53,600 Dividends receivable 53,600

Explanation / Answer

Note-1 As the additional excess cost over&above the applicable %age of Book value was attributable to a trademark with a 10-year life for the first purchase and a 9-year life for the second NO JOURNAL ENTRY need to be passed for land undervaluation under both circumstances.

Books of Austin ,Inc. Date Account Titles Debit Credit Jan 1,2014 Investment in Mckenzie Corporation $   230,600 Cash $      230,600 Cash(109000*10%) $     10,900 Dividend Income in Mckenzie $         10,900 Investment in Mckenzie Corporation $   693,930 Cash $      693,930 (Note-1) 2015 Investment in Mckenzie Corporation $   142,700 Share of Mckenzie Income(356750*40%) $      142,700 Cash (134000*40%) $     53,600 Investment in Mckenzie Corporation $         53,600 In case of dividend declaration Dividend receivable (134000*40%) $     53,600 Investment in Mckenzie Corporation $         53,600 When the above dividend is received Cash (134000*40%) $     53,600 Dividend receivable (134000*40%) $         53,600

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