Question

Osprey Company purchases 5,000 shares (25%) of Dove Company's outstanding common stock, paying $125,000 for the shares when Dove's book value is $390,000 and fair value is $520,000. The entry to record the purchase will include a:______.

Answer 1

Answer:

Dr investment in Dove Company 125,000

    Cr Cash 125,000

Explanation:

Since Osprey's investment results in a significant influence over Dove, Osprey must use the equity method to record this transaction. When the equity method is used, the investment is recorded at cost and any goodwill should be amortized by net income from following periods.