Question

On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000. For the year ending December 31, McGuire earned income of $48,000 and paid dividends of $14,000. Required: Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire.

Answer 1

Answer:

The entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire would be as follows:

                                 debit credit

jan 2

Investment in equity $205,000  

cash                                $205,000

[Investment made]  

dec3 1

Investment in equity $19,200  

share in net income of affilates  $19,200

[share in net income recorded]

dec 31

cash                        $5,600  

dividend income                          $5,600

[dividend received]

Explanation:

The entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire would be as follows:

                                 debit credit

jan 2

Investment in equity $205,000  

cash                                $205,000

[Investment made]  

dec3 1

Investment in equity $19,200  

share in net income of affilates  $19,200

[share in net income recorded]

share in net income of affilates=$48,000*0.40=$19,200

dec 31

cash                        $5,600  

dividend income                          $5,600

[dividend received

dividend income=14000*0.40=$5,600