Answer:
a) <u>Investment Value as at December 31, 2020 / Jan 1, 2021 $64,000</u>
<u>b) Value of Equity Investment Dec 31, 2021 $491, 000</u>
Explanation:
First Part is to calculate the January 1, 2021 entry to adjust the Equity account based on additional acquisition on that date
It should be noted that the investment balance as at 31st December 2020, will also be the value of the investment balance for the start of the next year January 1st 2021.
Therefore,
Step 1: Calculate the Investment Balance as at 31st Dec, 2020
Acquisition Cost of 15% Investment (Procter Corporation Jan 1) $70,000
Subtract: The dividend received 31st Dec, 2020 ($40,000 x .15) <u>($6,000)</u>
<u>Investment Value as at December 31, 2020 $64,000</u>
Step 2: Calculate the Investment Gain (Equity Investment)
The formula= Market value of Equity (year end) - Carrying Value (calculated in step 1)
= $68,000 - $64,000
= $4,000
Step 3: The journal entry to adjust the equity investment account
Date Particulars Debit Credit
Dec, 31, 2020 Equity Investment $4,000
Gain Unrealized on Equity Investment $4,000
being the journal record adjusting equity investment at the time of new acquisition
Part B: Balance of the Equity Investment Account Dec 31, 2021
The value of the Investment as at 31, Dec, 2020 $64,000
Add: The additional investment in Procter (Jan 1, 2021) $310,000
Add: Net Income Share for Rogers (45% x $300,000) $135,000
(45% because the initial 15% and the 30% additional)
Subtract: Dividend received (45% x $40,000) <u> ($18,000)</u>
<u>Value of Equity Investment Dec 31, 2021 $491, 000</u>
