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7BE

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Intermediate Accounting (Kieso)
Found in: Page 610

Short Answer

Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment.

a) The amount debited to investment is $300,000.

b) The amount of dividend received is $18,000.

c) The unrealized gain on the investment is $54,000.

See the step by step solution

Step by Step Solution

Step-by-Step Solution Step 1: Definition of Investment

Investment means the excess amount used for saving in future

Step 2:  Journal entry of the purchase of the investment

Date

Description

Debit

Credit

A.

Investment

$300,000

Cash

$300,000

Being entry to record the purchase of common stock

Step 3: Journal entry for the dividend  received

Date

Description

Debit

Credit

B

Cash

$18,000

Dividends

$18,000

Being entry of dividend received

Step 4: Adjustment entry for a share in net income

Date

Description

Debit

Credit

C

Investment

$54,000

Share of equity method in earnings

$54,000

Being fair value adjustment common stock

Most popular questions for Business-studies Textbooks

(Comprehensive Intangible Assets) Montana Matt’s Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magik plans to integrate the instructional business into his golf equipment and accessory stores. Magik paid $770,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $650,000 and liabilities of $200,000 (thus owners’ equity was $450,000). The fair value of Old Master’s assets is estimated to be $800,000. Included in the assets is the Old Master trade name with a fair value of $10,000 and copyright on some instructional books with a fair value of $24,000. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.

Instructions

  1. Prepare the intangible assets section of Montana Matt’s Golf Inc. on December 31, 2016. How much amortization expense is included in Montana Matt’s income for the year ended December 31, 2016? Show all supporting computations.
  2. Prepare the journal entry to record amortization expenses for 2017. Prepare the intangible assets section of Montana Matt’s Golf Inc. on December 31, 2017. (No impairments are required to be recorded in 2017.)
  3. At the end of 2018, Magilke is evaluating the results of the instructional business. Due to fierce competition from online and television (e.g., the Golf Channel), the Old Master reporting unit has been losing money. Its book value is now $500,000. The fair value of the Old Master reporting unit is $420,000. The implied value of goodwill is $90,000. Magik has collected the following information related to the company’s intangible assets.

Intangible Asset

Expected Cash Flows (undiscounted)

Fair value

Trade names

$ 9,000

$ 3,000

Copyrights

30,000

25,000

Prepare the journal entries required, if any, to record impairments on Montana Matt’s intangible assets. (Assume that any amortization for 2018 has been recorded.) Show supporting computations.

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