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On January 1, 2018, Alamar Corporation acquired a 39 percent interest in Burks, Inc., for $228,000. On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $327,000. During 2018, Burks reported net income of $79,000 and declared and paid cash dividends of $29,000. Alamar sold inventory costing $26,000 to Burks during 2018 for $42,000. Burks used all of this merchandise in its operations during 2018. Prepare all of Alamar's 2018 journal entries to apply the equity method to this investment.

Sagot :

Parrain

Answer:

Date                    Account Title                                         Debit               Credit

Jan 1, 2018         Investment in Burks, Inc                    $228,000

                          Cash                                                                         $228,000

Date                    Account Title                                         Debit               Credit

Dec. 31, 2018     Investment in Burks, Inc                     $30,180

                          Revenue from investment                                          $30,180

Working:

= Net income of Burks * Ownership percentage

= 79,000 * 39%

= $30,180

Date                    Account Title                                         Debit               Credit

Dec. 31, 2018     Dividend receivable                          $11,310

                           Investment in Burks, Inc                                              $11,310

Working

= Dividends declared * Ownership percentage

= 29,000 * 39%

= $11,310

Date                    Account Title                                         Debit               Credit

Jan 1, 2018         Cash                                                    $11,310

                          Dividend Receivable                                                   $11,310

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