Question

Land​ Services, Inc. owns 35​% of voting stock of World​ Investments, Inc. During the year​ 2018, World​ Investments, Inc. earned profits of $300,000. Under the equity​ method, which of the following journal entries will Land Services​ record?
A) Long-term Investments—Grey Investments Inc.: 250,000
Cash: 250,000
B) Cash: 75,000
Dividend Revenue: 75,000
C) Cash: 75,000
Long-term Investments—Grey Investments Inc.: 75,000
D) Long-term Investments—Grey Investments Inc.: 75,000
Revenue from Investments: 75,000

Answer 1

The correct question is:

Glitter Services Inc. owns 30% of voting stock of Grey Investments Inc. During the year 2015, Grey Investments Inc. earned profits of $250,000. Under the equity method, which of the following journal entries will Glitter Services record?

Answer:

D) Debit Long-term Investments—Grey Investments Inc.: 75,000

Credit Revenue from Investments: 75,000

Explanation:

Equity method is used in accounting to treat a companie's investment in associate companies. Usually equity accounting is used when a company owns 20 to 50% of shares in an associate company.

In this case Glitter Services, Inc. owns 30% of voting stock of World​ Investments, Inc.

Grey Investments, Inc. earned profits of $250,000.

So the value of investment is 0.3 * 250,000 = $75,000

So this amount is Debited from Long Term Investment account and credited to Revenue from Investments