enuri Prepare all joumar Problem 23 LO3 5 6 On January Year

enuri Prepare all joumar Problem 2-3 LO3, 5, 6 On January Year 5 Blake Corporation purchased 25% of the outstanding common shares of Ster- gis Limited for $1,850,000. The following relates to Stergis since the acquisition date Other Comprehensive Income $11,400 29,600 Dividends Paid $74,000 74,000 Net Income Year Year 5 Year 6 $ 51,800 148,000 Required (a) Assume that Blake is a public company and the number of shares held by Blake is enough to give it significant influence over Stergis. Prepare all the journal entries that Blake should make regarding this investment in Year 5 and Year 6. Also, state thed 6 pertaining to Blake\'s investment in Stergis isclpsure requirements for Year 95 CHAPTER 2 Investments in Equity Securities (b) Assume that Blake is a private company. Even though it has significant influence, it chose to use the cost method should make regarding this investment in Year 5 and Year 6. to account for its investment. Prepare all the journal entries that Blake (c) If Blake wants to show the lowest debt-to-equity ratio at the end of Year 6, would it prefer to use the cost or equity method to report its investment in Stergis? Briefly explain. Problem 2-4

Solution

ournal Entries - Blake Corporation Date Particulars Debit Credit Year 5, Jan 1 Investment in Stergis Limited Dr $1,850,000.00        To Cash $1,850,000.00 (To record purchase of 25% of Stergis) Year 5, Dec 31 Investment in Stergis Limited Dr $12,950.00        To Investment Income $12,950.00 (To record 25% of Stergis year 5 net income) Year 5, Dec 31 Investment in Stergis Limited Dr $2,850.00        To Other Comprehensive Income $2,850.00 (To record 25% of Stergis year 5 OCI) Year 5, Dec 31 Cash Dr $18,500.00        To Investment in Stergis Limited $18,500.00 (To record 25% of Stergis year 5 Dividend) Year 6, Dec 31 Investment in Stergis Limited Dr $37,000.00        To Investment Income $37,000.00 (To record 25% of Stergis year 6 net income) Year 6, Dec 31 Investment in Stergis Limited Dr $7,400.00        To Other Comprehensive Income $7,400.00 (To record 25% of Stergis year 6 OCI) Year 6, Dec 31 Cash Dr $18,500.00        To Investment in Stergis Limited $18,500.00 (To record 25% of Stergis year 6 Dividend) Solution b: Journal Entries - Blake Corporation Date Particulars Debit Credit Year 5, Jan 1 Investment in Stergis Limited Dr $1,850,000.00        To Cash $1,850,000.00 (To record purchase of 25% of Stergis) Year 5, Dec 31 Cash Dr $18,500.00        To Dividend Income $18,500.00 (To record 25% of Stergis year 5 Dividend) Year 6, Dec 31 Cash Dr $18,500.00        To Dividend Income $18,500.00 (To record 25% of Stergis year 6 Dividend)