Question

On January 1, 2017, Pennington Corporation purchased 30% of the common shares of Edwards Company for $180,000. During the year, Edwards earned net income of $80,000 and paid dividends of $20,000. Prepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company in 2017.

Answer 1

Answer:

Date                Account Title                                    Debit                       Credit

12/31/2017      Equity Investment                         $180,000

                      Cash                                                                              $180,000

Date                Account Title                                    Debit                      Credit

12/31/2017       Cash                                               $6,000

                       Equity Investment                                                           $6,000

Working:

Cash received as dividend = 30% * 20,000 dividend

= $6,000

Date                Account Title                                    Debit                  Credit

12/31/2017       Equity Investments                       $24,000

                       Investment Revenue                                                 $24,000

Working:

Company is entitled to 30% of income:

= 30% * 80,000

= $24,000