Homework Answers
a. The journal entry is a normal entry when the company makes an investment. There is inflow of Investment Asset along with outflow of Cash into acquisition of that investment. The entry is as follows:
|
Equity Investment a/c Dr (or Investment In subsidiary) |
530000 | ||
| To Cash a/c | 530000 |
b.The fist entry is to transfer the common stock and retained earnings to the investment a/c. Consolidation of these would eliminate the Asset and Equity in the Statements. Followed by this the difference in Cost of Investment and the value of Common stock and retained earnings will be distributed to Patent viz 190,000 the face value and the balance viz.,130000 towards Goodwill.
| E | Common Stock | ||
| Common Stock a/c Dr | 120000 | ||
| Retained Earnings a/c Dr | 90000 | ||
| To Equity Investment a/c | 210000 | ||
| A | Patent | ||
| Patent A/c dr | 190000 | ||
| Goodwill a/c dr (Balancing Figure) | 130000 | ||
| To Equity Investment a/c | 320000 | ||
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