Question

On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $600,000. For the year ended December 31, Fain Company earned income of $140,000 and paid dividends of $50,000. Prepare the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.

Answer 1

Answer: Please refer to Explanation

Explanation:

We shall do the accounting entries as follows,

Purchase of the stock

January 2

DR Investment in Fain Stock $600,000

CR Cash $600,000

The share of Fain income

December 31

DR Investment in Fain Stock $56,000

CR Revenue from Investment (40% * $140,000 income) $56,000

The dividends received from Fain Company.

December 31

DR Cash (40% * $50,000 dividend payout) $20,000

CR Investment in Fain Stock $20,000

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