Homework SourseAccounting for Investments Using the Cost and Equity Methods
Accounting for Investments Using the Cost and Equity Methods
On 1/1/x1, Omega Corporation’s net worth was as follows:
Common stock (15,000 shares, $10 par value) $150,000
Additional paid-in capital 30,000
Retained Earnings 60,000
Total $240,000
On 1/1/14, Alpha, Inc. purchased 3,000 shares of Omega Corporation at a price of $29 per share. Omega Corporation’s equity securities are not readily marketable. Alpha could not attribute any of the excess cost over book value to any specific Omega assets and considered this excess to be goodwill.
Omega’s earnings and dividends for the next three years were as follows:
Year Net Income Dividends
20x1 10,000 6,000
20x2 25.000 30,000
20x3 80,000 40,000
Required:
Complete the following table, assuming that Alpha, Inc. had significant influence over Omega Corporation.
For Alpha, Inc.’s financial statements:
Year
Balance sheet amount reported for Investment in Omega Corporation at end of 12/31
Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31
20x1
20x2
20x3
Complete the following table, assuming that Alpha, Inc. did not have significant influence over Omega Corporation:
For Alpha, Inc.’s financial statements:
Year
Balance sheet amount reported for Investment in Omega Corporation at end of 12/31
Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31
20x1
20x2
20x3
Attach an Accounting for Investments Using the Cost and Equity Methods
On 1/1/x1, Omega Corporation’s net worth was as follows:
Common stock (15,000 shares, $10 par value) $150,000
Additional paid-in capital 30,000
Retained Earnings 60,000
Total $240,000
On 1/1/14, Alpha, Inc. purchased 3,000 shares of Omega Corporation at a price of $29 per share. Omega Corporation’s equity securities are not readily marketable. Alpha could not attribute any of the excess cost over book value to any specific Omega assets and considered this excess to be goodwill.
Omega’s earnings and dividends for the next three years were as follows:
Year Net Income Dividends
20x1 10,000 6,000
20x2 25.000 30,000
20x3 80,000 40,000
Required:
Complete the following table, assuming that Alpha, Inc. had significant influence over Omega Corporation.
For Alpha, Inc.’s financial statements:
Year
Balance sheet amount reported for Investment in Omega Corporation at end of 12/31
Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31
20x1
20x2
20x3
Complete the following table, assuming that Alpha, Inc. did not have significant influence over Omega Corporation:
For Alpha, Inc.’s financial statements:
Year
Balance sheet amount reported for Investment in Omega Corporation at end of 12/31
Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31
20x1
20x2
20x3
Attach an Excel spreadsheet containing documentation to support the above reported amounts.Excel spreadsheet containing documentation to support the above reported amounts.
| For Alpha, Inc.’s financial statements: Year | Balance sheet amount reported for Investment in Omega Corporation at end of 12/31 | Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31 |
| 20x1 | ||
| 20x2 | ||
| 20x3 |
Solution
1...Alpha, Inc. had significant influence over Omega Corporation. Journal entries (Equity method) On Investment in Omega Corp. 1/1/20X1 Investment in Omega Corp. 87000 Cash 87000 Proportionate Net Income for 20X1 12/31/20X1 Investment in Omega Corp. 2000 Invetment income 2000 (3000/15000=1/5*10000) Proportionate Dividends for 20X1 12/31/20X1 Cash 1200 Investment in Omega Corp. 1200 (1/5*6000) Proportionate Net Income for 20X2 12/31/20X2 Investment in Omega Corp. 5000 Invetment income 5000 (3000/15000=1/5*25000) Proportionate Dividends for 20X2 12/31/20X2 Cash 6000 Investment in Omega Corp. 6000 (1/5*30000) Proportionate Net Income for 20X3 12/31/20X3 Investment in Omega Corp. 16000 Invetment income 16000 (3000/15000=1/5*80000) Proportionate Dividends for 20X3 12/31/20X3 Cash 8000 Investment in Omega Corp. 8000 (1/5*40000) For Alpha, Inc.’s financial statements: Year ended Dec.31 Balance sheet amount reported for Investment in Omega Corporation at end of 12/31 Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31 20X1 87800 2000 20X2 86800 5000 20X3 94800 16000 87000+2000-1200= 87800 87800+5000-6000= 86800 86800+16000-8000= 94800 2...Alpha, Inc. has no significant influence over Omega Corporation. Journal entries ( Cost method) On Investment in Omega Corp. 1/1/20X1 Investment in Omega Corp. 87000 Cash 87000 Proportionate Dividends for 20X1 12/31/20X1 Cash 1200 Dividend Income 1200 (1/5*6000) Proportionate Dividends for 20X2 12/31/20X2 Cash 6000 Dividend Income 6000 (1/5*30000) Proportionate Dividends for 20X3 12/31/20X3 Cash 8000 Dividend Income 8000 (1/5*40000) For Alpha, Inc.’s financial statements: Year ended Dec.31 Balance sheet amount reported for Investment in Omega Corporation at end of 12/31 Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31 20X1 87000 1200 20X2 87000 6000 20X3 87000 8000
