Answer:
a)
January 4, year 1, investment in Silva Company (36% of outstanding stocks)
Dr Investment in Silva Company 5,184,000
Cr Cash 5,184,000
July 2, year 1, distributed dividends ( $292,000 x 36%)
Dr Cash 104,400
Cr Investment in Silva Company 104,400
December 31, year 1, net income reported by Silva Company ($971,000 x 36%)
Dr Investment in Silva Company 349,560
Cr Revenue from investment in Silva Company 349,560
b)
Balance of Investment in Silva Company = $5,184,000 - $104,400 + $349,560 = $5,429,160
Explanation:
Since Ferguson exercises significant influence over Silva Company, they must record the investment using the equity method.
