Question

please explain briefly.

Answer 1

Solution : (A)

Journal Entries:

1) Record Investment:

Investment in Flash A/C Dr. $434,500

To Cash Cr. $434,500

2)Record Income:

Investment in Flash A/C Dr. $112,000

To Equity Income in Flash Cr. $112,000

( Investment in Flash account increases by Comet proportionate share of the undistributed earnings of Flash).

3) Record Cash Dividend:

Cash A/c Dr. $20000

To Investment in Flash A/C Cr. $20000

( the Investment in Flash account is reduced by the amount of the dividend because the dividend is considered a return of capital.)

Solution (B)

Equity Income of Comet for 2018 will be $ 112000. ( i.e 40% of 280000).

Solution (C)

The balance of Investment in Flash at the end 2018 :

Investment cost $434500

+ Equity Income $ 112000

- Dividend $ 20000

Total value of Investment $526500