The Equity Method Accounting Entries Illustration Summer I 2009

The Equity Method Accounting Entries Illustration 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. Notes: 1. Katel, Inc.’s book value increased by $200,000 ($250,000 – 50,000). 2. The net change in Jordan’s investment account from equity method entries is $60,000 ($75,000 – 15,000). This is represented by 30% of the book value increase of $200,000 or $60,000. Illustration 3 – Excess of Investment Cost over Book Value Acquired
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Let’s assume that the acquisition price for the Katel stock was determined as follows: Book value of Katel’s net assets $600,000 Undervalued land
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The Equity Method Accounting Entries Illustration Summer I 2009

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