1. On January 2, 2015, Blue Corp paid $400,000 to purchase 40% of the outstanding voting...

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1. On January 2, 2015, Blue Corp paid $400,000 to purchase 40% of the outstanding voting stock of Black Corp. June 1, 2015, B

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Answer 1

Answer #1

Solution a to c:

Journal Entries - Blue Corp.
Date	Particulars	Debit	Credit
2-Jan-15	Investment in Black Corp. Dr	$400,000.00
	To Cash		$400,000.00
	(To record investment in Black corp)

1-Jun-15	Cash Dr	$14,000.00
	To Investment in Black Corp.		$14,000.00
	(To record dividend received)

31-Dec-15	Loss on investment Dr	$320,000.00
	To Investment in Black Corp.		$320,000.00
	(To record share of loss in Black corp)

Solution d:

Balance in investment account at 31.12.2015 = $400,000 + $14,000 - $320,000 = $94,000

Solution e:

As equity method is used, no journal entry is required to adjust fair value of investment.

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Answer 2

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