Answer:
December 31, 2013, revenue from investment in Coca Cola FEMSA
Dr Investment in Coca Cola FEMSA 1,635,000
Cr Investment revenue 1,635,000
Explanation:
Under the full equity method, when Coca Cola FEMSA reports net income, the investment account will increase in a proportional way, and that increase is considered investment revenue.
E.g. Coca Cola Company owns 32% of stocks and reported net income is $5,000,000, so investment revenue = $5,000,000 x 32% = $1,600,000
But we must also include any realized/unrealized profits on intercompany transactions:
realized profits = markup x January 1 inventories = 35% x ($1,350,000 - $1,350,000/1.35) = $350,000
unrealized profits = markup x December 31 inventories = 35% x ($1,215,000 - $1,215,000/1.35) = $315,000
total investment revenue = % of net income reported + realized profits - unrealized profits = $1,600,000 + $350,000 - $315,000 = $1,635,000
The journal entry should be:
December 31, 2013, revenue from investment in Coca Cola FEMSA
Dr Investment in Coca Cola FEMSA 1,635,000
Cr Investment revenue 1,635,000
