Concept explainers
a.
Introduction: Equity method is the one of the methods of treating investment in companies. This method is used when the investor has a significant influence over the investee. Investor owns between 20% to 50% of investee’s shares or voting rights.
To prepare:
b.
Introduction: Consolidation accounting is a process where in the financial statement of several subsidiary companies are combined and showed in the financial statements of parent company. When the parent company has a share of 50% or more in a subsidiary company then this method is adopted.
To prepare: Consolidated entries needed to prepare consolidated financial statement.
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Advanced Financial Accounting
- Clinton Ltd acquired 20% of and significant influence over the operations of Lee Ltd on 1 July 20X0. At that date, the equity of Lee Ltd comprised retained profits of $800,000 and paid up capital of $3,000,000. During the financial year ended 30 June 20X1, Lee Ltd paid a final dividend of $300,000 out of profits earned in the year ended 30 June 20X1. Clinton Ltd does not control any entities. What is the journal entry to record these dividends for Clinton Ltd for the year ended 30 June 20X1 under equity accounting? Note that the reclassification method/approach is used. Select one: A. Accounts Debit $ Credit $ Bank 300,000 Dividend revenue 300,000 ... B. Accounts Debit $ Credit $ Bank 60,000 Investment in Lee 60,000 ... C. Accounts Debit $ Credit $ Bank 60,000 Dividend revenue…arrow_forwardAt the beginning of the current year, an entity acquired 40% of the ordinary shares of an associate. On such date, assets and liabilities of the investee were recorded at fair value and the acquisition showed that goodwill of P1,000,000 was acquired. The investee reported net income of P8,000,000 for the current year. In December, the investee sold inventory costing P3,000,000 to the investor for P5,000,000. The inventory remained unsold by the investor at year-end. At the beginning of the current year, the investee sold equipment to the investor with a carrying amount of P2,500,000 for P4,000,000. The remaining life of the equipment is 5 years. What amount of investment income should be reported for the current year? a. 1,920,000 b. 1,800,000 c. 3,200,000 d. 2,400,000 Problem 4 An entity owned 100% of another entity’s preference shares and 20% of ordinary shares. The investee’s share capital outstanding at year-end included P5,000,000 of 10% cumulative preference…arrow_forwardOn January 1, Year 1, RAK, Inc acquired a 25% interest in Tech Corp. for $375,000. At the date of acquisition, the net assets had a fair value in excess of shareholders' equity of $200,000. The fair value in excess of book value is the result of equipment with a remaining useful life of four years. For the year ended December 31, Year 1. Tech had net income of $60,000 and RAK received a dividend of $10,000 from Tech. At December 31, Year 1. Tech had shareholders' equity of $820,000. What is the amount of goodwill associated with RAK's purchase of Tech? O $175,000 O $170,000 O $125,000 O $93,750arrow_forward
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