Question

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rowan company purchases 600 common shares (40%) of jbi corporation as a long - term investment for $550,000 cash on january 1. jbi paid $8,750 in total cash dividends on november 1 and reported net income of $175,000 for the year.
qs 15 - 16 (algo) recording equity method transactions lo p5
(1) - (3) prepare rowans entries to record the purchase of jbi shares, the receipt of its share of jbi dividends, and the december 31 year - end adjustment for its share of jbi net income.
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journal entry worksheet
< 1 2 3
record the purchase of jbi shares.
note: enter debits before credits.

Explanation:

Step1: Record the purchase of JBI shares

When purchasing shares as a long - term investment, we debit the investment account and credit the cash account.
Debit: Investment in JBI Corporation $550,000
Credit: Cash $550,000

Step2: Record the receipt of dividends

The share of dividends is calculated as \(40\%\) of the total dividends. The formula for the share of dividends \(D = 0.4\times8750\).
\(D = 3500\)
Debit: Cash $3,500
Credit: Investment in JBI Corporation $3,500

Step3: Record the share of net income

The share of net income is calculated as \(40\%\) of the net income. The formula for the share of net income \(I=0.4\times175000\).
\(I = 70,000\)
Debit: Investment in JBI Corporation $70,000
Credit: Investment Income $70,000

Answer:

1.

Date	General Journal	Debit	Credit
	Cash		$550,000

2.

Date	General Journal	Debit	Credit
	Investment in JBI Corporation		$3,500

3.

Date	General Journal	Debit	Credit
	Investment Income		$70,000