Question

Q1. Prepare JEs for the following transactions Assuming a) Fair value method b) equity method 1. At the beginning of Year 1, Crane bought 30% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $800,000 on this date. 2. During Year 1, Hudson reported $60,000 of net income and paid $30,000 of dividends. 3. During Year 2, Hudson reported $30,000 of net income and paid $20,000 of dividends. 4. During Year 3, Hudson reported a net loss of $10,000 and paid $4,000 of dividends. Tu 5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.

Answer 1

Jounral Entries ($)

	Fair Value method			Equity Method
1.	Investment Dr (800,000×30%)	240,000		Investment Dr	240,000
	To Cash		240,000	To Cash		240,000
2.	Cash Dr(30,000×30%)	9,000		Investment Dr (60,000×30%)	18,000
	To Dividend Income		9,000	To Investment Revenue		18,000
				Cash Dr	9,000
				To Invesment		9,000
3.	Cash Dr(20,000×30%)	6,000		Investment Dr	9,000
	To Dividend Income		6,000	To Investment Revenue (30,000×30%)		9,000
				Cash Dr	6,000
				To Investment		6,000
4.	Cash Dr (4000×30%)	1,200		Investment Revenue Dr (10,000×30%)	3,000
	To Dividend income		1,200	Cash Dr	1200
				To Investment		4,200
5.	Balance in Investment a/c	240,000			247,800
	Total Dividend Revenue (cumulative)	16,200			---
	Total Investment revenue				24,000