Question

Wildhorse Locomotive Corporation purchased for $604,000 a 40% interest in Lopez Railways, Inc. This investment enables Wildhorse Locomotive to exert significant influence over Lopez Railways. During the year, Lopez Railways earned net income of $159,000 and paid dividends of $27,000. Prepare ZaneLocomotive’s journal entries related to this investment.

Answer 1

Answer:

Dr Equity Investments $604,000

Cr Cash $604,000

Dr Equity Investments $63,600

Cr Investment Income $63,600

Dr Cash $10,800

Cr Equity Investments $10,800

Explanation:

Preparation of ZaneLocomotive’s journal entries related to this investment.

Dr Equity Investments $604,000

Cr Cash $604,000

(Being to record Investment)

Dr Equity Investments $63,600

Cr Investment Income $63,600

(40% × $159,000)

(Being to record share in net income)

Dr Cash $10,800

Cr Equity Investments $10,800

(40% × $27,000)

(Being to record shares in dividend)