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Chapter 12: 7BE (page 610)

Zoop Corporation purchased for \(300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of \)180,000 and paid dividends of $60,000. Prepare Zoop鈥檚 journal entries related to this investment.

Short Answer

Expert verified

a) The amount debited to investment is $300,000.

b) The amount of dividend received is $18,000.

c) The unrealized gain on the investment is $54,000.

Step by step solution

01

Step-by-Step Solution Step 1: Definition of Investment

Investment means the excess amount used for saving in future

02

 Journal entry of the purchase of the investment

Date

Description

Debit

Credit

A.

Investment

$300,000

Cash

$300,000

Being entry to record the purchase of common stock

03

Journal entry for the dividend  received

Date

Description

Debit

Credit

B

Cash

$18,000

Dividends

$18,000

Being entry of dividend received

04

Adjustment entry for a share in net income

Date

Description

Debit

Credit

C

Investment

$54,000

Share of equity method in earnings

$54,000

Being fair value adjustment common stock

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Most popular questions from this chapter

Question: Treasure Land Corporation incurred the following costs in 2017

Cost of laboratory research aimed at discovery of new knowledge

\(120,000

Cost of testing in search for product alternatives

\)100,000

Cost of engineering activity required to advance the design of a product to the manufacturing stage

\(210,000

\)430,000

Prepare the necessary 2017 journal entry or entries for Treasure Land.

Indicate how unrealized holding gains and losses should be reported for debt investments classified as trading, available-for-sale, and held-to-maturity.

Question: (Accounting for Goodwill) On July 1, 2017, Brigham Corporation purchased Young Company by paying \(250,000 cash and issuing a \)100,000 note payable to Steve Young. At July 1, 2017, the balance sheet of Young Company was as follows.

Cash
\( 50,000
Accounts payable
\)200,000
Accounts receivable
90,000
Stockholders鈥� equity
235,000
Inventory
 100,000

\(435,000
Land
40,000


Buildings (net)
75,000


Equipment (net)
70,000


Trademarks
10,000



\)435,000






The recorded amounts all approximate current values except for land (fair value of \(60,000), inventory (fair value of \)125,000), and trademarks (fair value of \(15,000).

Instructions

Prepare the July 1 entry for Brigham Corporation to record the purchase.

Prepare the December 31 entry for Brigham Corporation to record amortization of intangibles. The trademark has an estimated useful life of 4 years with a residual value of \)3,000.

Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of \(70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to \)60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

Question: (Recording and Amortization of Intangibles) Marshall Company, organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017.

1/2/17

Purchased patent (8-year life)

\( 350,000

4/1/17

Purchase goodwill (indefinite life)

360,000

7/1/17

Purchased franchise with 10-year life; expiration date 7/1/27

450,000

8/1/17

Payment of copyright (5-year life)

156,000

9/1/17

Research and development costs

215,000

\)1,531,000

Instructions

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2017, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)
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