Question

Base Electronics buys 5,000 shares of stock in Blue Mission Company for $10 per share on January 2 of the current year. Base owns 34% of Blue Mission voting stock and intends to hold on to it for several years. On December 31, the end of the current year, Blue Mission had $100,000 in net income. What is the journal entry for Base Electronics to record their share of net income of Blue Mission Company?

Answer 1

Answer:

December 31

• Dr Equity Investments account (Blue Mission) 34,000
• Cr Revenue from Investments account 34,000

Explanation:

Since Base owns 34% of Blue, they should record 34% of Blue's net income = $100,000 x 34% = $34,000

December 31

Dr Equity Investments account (Blue Mission) 34,000

Cr Revenue from Investments account 34,000

Equity investments account is an asset account and it increases, therefore it should be debited.

Revenue from investments is a revenue account and all revenue is credited.