2011 Jan 1 investor Corporation purchased 8,000 shares (20%) of Investee

$11.00

Description

2011
Jan

1

investor Corporation purchased 8,000 shares (20%) of Investee Company’s outstanding stock at a cost of $150,000.
May
31
Investee

company declared and paid a cash

dividend of $1.50 per share.
Dec
31
Investee Company announced that it net income for the year was $100,000.
2012
Oct

1

Investee Company declared and paid a cash dividend

of $1.00 per share.
Dec
31
Investee Company announced that its net income for the year was $80,000.
2013
Jan

1

Investorcorporaion sold all of its shares of Investee Company for $178,000 cash
Required:

Prepare journal entries on Investor Corporation’s books using theeqity method, which assumes that Investor has significant influence over Investee Company.
Prepare journal entries on Investor Corporation’s books using the cost method, which assumes that even though Investor owns 20% of Invitees stock, Investor does not have significant influence over Investee (for example, another corporation owns 70% of Investee Company’stock).
Write a brief report between 200-300 words in length outlining your recommendations to senior management based on the information presented here.

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