Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 25 Sep 2017 My Price 9.00

Pim Company

Adjust investment account and determine income when additional investment qualifies for equity method of accounting

Summary balance sheet and income information for Pim Company for two years is as follows (in thousands):

 

January 1, 2011

December 31, 2011

December 31, 2012

Current assets

$ 50

$ 60

$ 75

Plant assets

200

240

250
 

$250

$300

$325

Liabilities

$ 40

$ 50

$50

Capital stock

150

150

150

Retained earnings

60

100

$125
 

$250

$300

$325
   

2011

2012

Net income

  

$100

$ 50

Dividends

  

60

25

On January 2, 2011, Pim Corporation purchases 10 percent of Fed Company for $25,000 cash, and it accounts for its investment (classified as an available-for-sale security) in Fed using the fair value method. On December 31, 2011, the fair value of all of Fed’s stock is $500,000. On January 2, 2012, Pim purchases an additional 10 percent interest in Fed stock for $50,000 and adopts the equity method to account for the investment. The fair values of Fed’s assets and liabilities were equal to book values as of the time of both stock purchases.

REQUIRED

1. Prepare a journal entry to adjust the Investment in Fed account to an equity basis on January 2, 2012.

2. Determine Pim’s income from Fed for 2012.

Answers

Maurice Tutor
(5)
Status NEW Posted 25 Sep 2017 01:09 PM My Price 9.00

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