Question

Mitchell Corporation pays $10 million to acquire a 30 percent interest in Turner Corporation’s stock on January 1, 2020, and reports the investment using the equity method. Any basis difference is attributed to goodwill. During 2020, Turner reports net income of $1,000,000, which includes $50,000 in realized and unrealized gains on trading securities. Turner also reports $80,000 in unrealized losses on AFS securities in other comprehensive income, and pays dividends of $250,000 in 2020. Required: Prepare Mitchell’s journal entries to record the above events for 2020.

Answer 1

Answer:

The Journal entries are for January 1, 2020 and January 31st, 2020 and they are explained and detailed in the explanation.

Explanation:

The question is to prepare the Journal entries for the Year 2020 for the Events of Mitchell Corporation

Date            Particulars                                          Debit                        Credit

Jan 1,           Mitchell's Investment in turner      $10,000,000

            Cash Ac (paid for the investment)                                    $10,000,000

Being the record of $10,000,000 paid for investment in Turner

Date            Particulars                                          Debit                       Credit

Dec 31,          Investment in Turner Corp            

                     (0.3 x 1,000,000)                           $300,000

                     Income from Turner (based on                                 $300,000

                    Mitchell's equity)

   Being the income for Mitchell as a result of equity in Turner

Date            Particulars                                          Debit                       Credit

Dec 31,         Cash A/c                                         $75,000          

                     (0.3 x 250,000)                                          

                   Investment in Turner                                                   $75,000

Being the recording of Dividend received by Mitchell from the investment in Turner

Date            Particulars                                              Debit                    Credit

Dec 31,         Other Comprehensive Income A/c     24,000        

                     (0.3 x 80,000)                                          

                   Investment in Turner                                                   $24,000

Being the recording of the Unrealised Loss.