Marley Investments Inc purchased 45 of the common stock of B

Marley Investments, Inc. purchased 45% of the common stock of Beige Corporation on January 1, 2019, Beige Corporation reports a net income of $700,000 for the 2019 year. Which of the following is the correct journal entry? OA. Equity Investments-Beige Corporation 315,000 Revenue from Investments 315,000 B. Revenue from Investments O C. Cash OD. Revenue from Investments 315,000 Cash 315,000 315,000 Revenue from Investments 315,000 315,000 315,000

Solution

29.7.18

Marley Investments, Inc.

Answer: Option A.

Since Marley holds more than 20% of the common stock of Beige Corporation, it is deemed to have substantial influence over Beige and the equity method of accounting is used thereby debiting equity investments and crediting revenue from investments for Marley’s share in the net income of Beige which is 45% x $700000 = $315000.

Answer: Option D. $244,800

Straight-line depreciation rate = 100%/5 years = 20%

DDB rate = 2 x 20% = 40%

Depreciation for first year = 40% x $1020000 = $408000

Book value at end of first year = $1020000 - $408000 = $612000

Depreciation for second year = 40% x $612000 = $244800

Brazos Company

Answer: Option C. debit to Interest Expense for $12,000

The journal entry to record first instalment payment will include debit to mortgage payable $9139 ($21139 - $12000), debit to interest expense $12000 (15% x $80000) and a credit to cash $21139. Hence, option C. is correct.

Westbrook Financial Services, Inc.

Answer: Option A.

The correct journal entry will include a debit to cash for the sale proceeds of $18250, credit to equity investments for the cost of the investments sold $13650 and a credit to the gain on disposal $18250 - $13650 = $4600. Hence, option A. is correct.

The cost of acquisition = $33000/7250 = $4.55 per share. Thus, cost of investments sold = $4.55 x 3000 = $13650.

Per Chegg guidelines, 4 MCQs have been answered.