Answer:
Patriot Company
The cost method adjustments are:
Debit Cash $80,000
Credit Dividends Revenue $80,000
To record the dividends received from Jags Inc.
Explanation:
a) Data and Calculations:
Investment in Jags Inc. = 80%
Jag's outstanding common shares = $800,000
Net income for 20X5 = $310,000
Dividends paid = $100,000
Cost of investment in Jags = $640,000
Cost method adjustments:
Cash $80,000 Dividends Revenue $80,000 ($100,000 * 80%)
b) With the 80% shareholding in Jags Inc., the investment is supposed to be accounted for using the equity method and not the cost method, and the accounts of the two companies should be consolidated. However, using the cost method leaves the investment at cost (or purchase price) in the balance sheet, while adjustments are made for dividends revenue.
