Homework Answers
Q.1 : Determine the "Investment in Sycophant" balance at December 31, 2013 by accounting for the equity method in investment T-account
| Investment in Sycophant | |||||
| Jan 1 2013 | Opening Balance | - | Dec 31 2013 | Cash for Dividend | 7,000 |
| Jan 1 2013 | Cash | 458,920 | |||
| Dec 31 2013 | Investment Income | 28,000 | |||
| Dec 31 2013 | Balance C/fwd | 479,920 | |||
| Total | 486,920 | 486,920 | |||
Q.2 AFor each adjustment in the T-account, above, determine the account and financial statement affected by the "other side" of the adjustment. For example, if the adjustment to the investment account is a debit, where does the credit go?
| Account Impacted | Debit | Credit | |
| Cash Account | 458,920 | ||
| Investment Income | 28,000 | ||
| Cash Account (Dividend) | 7,000 | ||
Q.3 Determine the effect of the "Investment in Sycophant" on the reported net income of Petulant during the year ended December 31,2013
| Investment income from Investment in Sycophant | 28,000 | ||
| Less: Amortisation of Acquisition premium account | 23,520 | ||
| Net Income from Investment in Sycophant | 4,480 | ||
Q.4 Determine the effect of the "investment in Sycophant" on the reported comprehensinve income of Petulant during the year ended December 31, 2013
100,800 will be appearing as debit to comprehensive income :
| Acquisition Premium Account 1st Jan 2013 | 124,320 | ||
| Less : Amortisation during the year | 23,520 | ||
| Balance Acquisition Premium Account | 100,800 | ||
Q.5 Without using T-account or journal entries, determine the "Investment in Sycophant" balance at December 31, 2015
| Opening Balance on 31 Dec 2013 | 479,920 | |
| Investment Income - 2014 | 38,500 | |
| Investment Income - 2015 | 45,500 | |
| Dividend -2014 | (7,000) | |
| Dividend -2015 | (7,000) | |
| Closing balance of Investment 31 dec 2015 | 549,920 | |
The balance of Acquisition Premium Account would be 53,760. So the disclosure in balance sheet will be as under :
Investment in Sycophant 549,200
Less : Acquisition Premium Account -53,760
Net Investment in Sycophant 495,440
Q.6 "Investment in Sycophant" under cost method as on December 31, 2015
$ 458,920 will be balance under cost method as on December 31,2015.
Under cost method investment is valued at historical cost and any dividend or other income arising is recognised in income statement.Any diminution in value is recognised in income statement.
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