The Equity Method Accounting Entries Illustration Instructor Version Summer I 2009

The Equity Method Accounting Entries Illustration Instructor Version Summer I 2009

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Accounting 401 Equity Method Accounting for Investees Summer I 2009 Illustration 2 – Basic Equity Method Accounting Jordan Company acquired a 30% interest in Katel, Inc. on January 1, 2008, for $300,000. For the years 2008, 2009, and 2010, Katel reported net income of $250,000, $350,000, and $450,000, respectively. Dividends declared and paid by Katel were $50,000, $100,000, and $150,000, respectively. Requirement 1: Prepare journal entries on Jordan’s books for 2008 with respect to its investment in Katel. Investment in Katel, Inc. common 300,000 Cash 300,000 To record investment in Katel, Inc. Investment in Katel, Inc. common 75,000 Equity in investee income 75,000 Accrual entry for investment in a 30%-owned investee ($250,000 x 0.3) Cash 15,000 Investment in Katel, Inc. common 15,000 To record declaration and receipt of dividends from a 30%-owned investee ($50,000 x 0.3). Notes: 1. Katel, Inc.’s book value increased by $200,000 ($250,000 – 50,000). 2.
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The Equity Method Accounting Entries Illustration Instructor Version Summer I 2009

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