Listed below are a few events and transactions of Kodax Comp

Listed below are a few events and transactions of Kodax Company 2017 Dan. 2 Purchased 21,0ee Sept. 1 Grecco declared and paid a cash dividend of $3.50 per share. shares of Grecco Co. common stock for $428,000 cash plusa broker\'s fee of $5,000 cash. Grecco has 70,000 shares of common stock outstanding, and its policies will be significantly influenced by Kodax. c. 31 Grecco announced that net income for the year is $516,90. 2018 une 1 Grecco declared and paid a cash dividend of $4.10 per share. Dec. 31 Grecco announced that net income for the year is $750,400. Dec. 31 Kodax sold 12,000 shares of Grecco for $428,000 cash Prepare journal entries to record the above transactions and events of Kodax Company. (Do not round intermediate celculations and round your final answers to the nearest dollar amount.)

Solution

First, Kodax Company has invested in 30 % of the shares of Grecco Co. Secondly, as a result of the acquisition, Kodax Company can significantly influence the policies of Grecco. Significant influence is generally determined by an investor owning between 20 % to 50 % of the investee company\'s outstanding voting stock.

Given this backdrop, the Equity Method of investment accounting will be followed. Accordingly, any share of dividends from Grecco Co. will not be recognized as dividend revenue in the income statement of Kodax Company, rather it will be deducted from its investment in Grecco. This is because any dividends are considered to be return on investment under the Equity Method, and hence are reduced from the asset.

Any share of net income of Grecco will be recognized as investment income in the income statement of Kodax Company, and will simultaneously increase its investment in Grecco.

In the books of Kodax Company:

Equity Investments: Grecco Co. ( $ 516,900 x 21,000 / 70,000)

Book value of the investment at the time of sale:

Date	Account Titles	Debit	Credit
		$	$
Jan 2, 2017	Equity Investment : Grecco Co.	433,000
	Cash		433,000
	To record acquisition of the investment
Sept 1, 2017	Cash	73,500
	Equity Investment : Grecco Co.		73,500
	To record receipt of dividends from investee
Dec 31, 2017	Equity Investments: Grecco Co. ( $ 516,900 x 21,000 / 70,000)	155,070
	Investment Income		155,070
	To record equity in investee earnings
June 1, 2018	Cash	86,100
	Equity Investment: Grecco Co.		86,100
	To record receipt of dividends from investee
Dec 31, 2018	Equity Investment: Grecco Co. ( $ 750,400 / 70,000 x 21,000 )	225,120
	Investment Income		225,120
	To record equity in investee earnings
Dec 31, 2018	Cash	420,000
	Equity Investment: Grecco Co. ( $ 653,590 x 12,000 / 21,000)		373,480
	Gain on Sale of Equity Investment		46,520
	To record sale of equity investment