Question

Oriole Company purchased 300 of the 1000 outstanding shares of Skysong Company's common stock for $660000 on January 2, 2021. During 2021, Skysong Company declared dividends of $140000 and reported earnings for the year of $270000. If Oriole Company uses the equity method of accounting for its investment in Skysong Company, its Equity Investments (Skysong) account at December 31, 2021 should be __________.

Answer 1

Answer:

$699,000

Explanation:

The journal entries should be:

January 2, 2021, 30% of Skysong's stock is purchased:

Dr Investment in Skysong Company 660,000

    Cr Cash 660,000

X, 2021, dividends are distributed:

Dr Cash 42,000

    Cr Investment in Skysong Company 42,000

Y, 2021, net earnings are reported:

Dr Investment in Skysong Company 81,000

    Cr Investment revenue 81,000

December 31 balance of investment in Skysong Company account = $660,000 - $42,000 + $81,000 = $699,000