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Chapter 10: Q15E_2 (page 571)

Accounting for equity investments

Suppose that on January 6, 2018, East Coast Motors paid \(280,000,000 for its 35% investment in Boxcar Motors. East Coast has significant influence over Boxcar after the purchase. Assume Boxcar earned a net income of \)90,000,000 and paid cash dividends of $45,000,000 to all outstanding stockholders during 2018. (Assume all outstanding stock is voting stock.)

Requirements

2. Journalize all required 2018 transactions related to East Cost Motors鈥檚 Boxcar investment. Include an explanation for each entry.

Short Answer

Expert verified

Both sides of the Journal total$327,250,000.

Step by step solution

01

Definition of Equity Investment

The investment that reflects the amount of shares purchased by the investor in the investee company is known as an equity investment.

02

Journal Entry

Date

Accounts and Explanation

Debit $

Credit $

6 Jan 2018

Equity Investment

$280,000,000

Cash

$280,000,000

31 Dec 2018

Equity investment

$31,500,000

Revenue from Investment

$31,500,000

31 Dec 2018

Cash

$15,750,000

Equity Investment

$15,750,000

$327,250,000

$327,250,000

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Most popular questions from this chapter

Question: S10-6 Accounting for debt investments

On June 1, 2018, Josh鈥檚 Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit鈥檚 bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.

Requirements

Journalize the transactions for Josh鈥檚 investment in Jackrabbit, Inc. for 2018.

What does the rate of return on total assets measure, and how is it calculated?

In 150 words or fewer, explain the difference between trading debt investments and available-for-sale debt investments.

Accounting for debt investments

Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond investment until maturity.

Requirements

1. Journalize Solomon Brothers鈥� transactions related to the bonds for 2018.

Question: S10-5 Accounting for debt investments

On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.

Requirements

1. Journalize the transactions for Bell鈥檚 investment in Grant, Inc. for 2018.
See all solutions

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