Question

tb problem qu. 15 - 186 (algo) recording equity method transactions
on january 2, a company purchased 11,600 shares of fit corporation common stock at $20 per share for $232,000 cash. this represents 25% of fit corporations outstanding stock. on august 6, fit corporation declared and paid cash dividends of $4.50 per share. on december 31, fit reported net income of $166,000.
(1) - (3) prepare entries for the purchase of shares, receipt of the companys share of fit dividends, and december 31 year - end adjustment for companys share of fit net income.
view transaction list
journal entry worksheet
record the purchase of shares.
note: enter debits before credits.
date general journal debit credit
january 02

Explanation:

Step1: Purchase of shares

When shares are purchased, the investment account is debited (increase in asset) and cash is credited (decrease in asset).
Debit: Investment in FIT Corporation \(232000\)
Credit: Cash \(232000\)

Step2: Receipt of dividends

Dividends received reduce the investment account (as it's a return of capital under equity method).
Number of shares \(= 11600\), dividend per share \(=\$4.50\)
Total dividends \(=11600\times4.50 = 52200\)
Debit: Cash \(52200\)
Credit: Investment in FIT Corporation \(52200\)

Step3: Share of net income

The company's share of net income (25% of \(\$166000\)) increases the investment account.
Share of net income \(=0.25\times166000 = 41500\)
Debit: Investment in FIT Corporation \(41500\)
Credit: Investment Income \(41500\)

Answer:

1.

Date	General Journal	Debit	Credit
	Cash		232000

2.

Date	General Journal	Debit	Credit
	Investment in FIT Corporation		52200

3.

Date	General Journal	Debit	Credit
	Investment Income		41500