Prepare the following journal entries. Be sure all dates agree with the problem and are not today's date.
Cost method:
Year 2014
Jan 1 Investor corporations purchased 8,000 shares (20% of investee company's outstanding stock) at a cost of $ 150,000.
May 31 Investee company declared and paid a cash dividends of $1.50 per share
Dec 31 Investee company announced that its net income for the year was $100,000 Cost method
Year 2015
Oct 1 Investee company declared and paid a cash dividend of $1.00 per share
Dec 21 Investee company announced its net income for the year in the amount of $ 80,000
Dec 31 Investor corporation sold all of its shares on investee company for $ 178,000 cash
Equity method
Year 2016
Jan 1 Investor corporations purchased 8,000 shares (20% of investee company's outstanding stock) at a cost of $ 150,000.
May 31 Investee company declared and paid a cash dividends of $1.50 per share
Dec 31 Investee company announced that its net income for the year was $100,000
Year 2017
Oct 1 Investee company declared and paid a cash dividend of $1.00 per share
Dec 21 Investee company announced its net income for the year in the amount of $ 80,000
Dec 31 Investor corporation sold all of its shares on investee company for $ 178,000 cash Required: Cost method:
Prepare journal entries for years 2014 and 2015 using the cost method, which assumes that investor does not have significant influence over Investee (for example, another corporation owns 70% of Investee Company's stock). Equity method: Prepare journal entries for years 2016 to 2017 on Investor Corporation's books using the equity method, which assumes that Investor has significant influence over Investee Company.