Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulik
ID: 2601292 • Letter: J
Question
Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,398,600 for 51,800 shares. Kulikowski Inc. declared and paid an $0.77 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $829,000 for 2014. The fair value of Kulikowski’s stock was $30 per share at December 31, 2014.
(a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2013
June 30, 2014
Dec. 31, 2014
(To record dividend.)
(To record fair value.)
(b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2013
June 30, 2014
Dec. 31, 2014
(To record dividend.)
(To record revenue.)
(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?
Fair Value Method
Equity Method
Open Show Wor
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2013
June 30, 2014
Dec. 31, 2014
(To record dividend.)
(To record fair value.)
Explanation / Answer
(a) journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski No significant influence , fair value method is used Date Account titles & Explanation Debit Credit Dec31-2013 Equity Investments (Available for sale) A/c 1398600 To cash A/c 1398600 (being Purchase of Equity has been recorded) 30-Jun-14 cash A/c (51800*$0.77) 39886 To Dividend revenue A/c 39886 (Being Dividend received has been recorded) 31/12/2014 cash A/c 39886 To Dividend revenue A/c 39886 (Being Dividend received has been recorded) 31/12/2014 fair value adjustment (Available for sales) A/c 155400 To Unrealised Hooding gain or Loss A/c 155400 Cost of the Investment 1398600 fair value of Investment (51800*$30) 1554000 Unrealised gain /(loss) 155400 (b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski Significant Influence is exited , so equity method is used Dec31-2013 Equity investment in Kulikowski A/c 1398600 To cash A/c 1398600 (being Purchase of Equity has been recorded) 30-Jun-14 cash A/c (51800*$0.77) 39886 To Equity investment in Kulikowski A/c 39886 (Being Dividend received has been recorded) 31/12/2014 cash A/c (51800*$0.77) 39886 To Equity investment in Kulikowski A/c 39886 (Being Dividend received has been recorded) 31/12/2014 Equity investment in Kulikowski A/c 165800 To revenue from ivestment A/c (829000*0.20) 165800 (being Share of net income has been recorded from Kulikowski) (c ) Amount of Investments shown on the balance sheet fair value method Equity method Investment Amount 1554000 1484628 (1398600-39886-39886+165800) Dividend revenue (39886+39886) 79772 Investment income (income Statements) (829000*0.20) 165800
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