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IA Problem 17 4

Bing Company purchased 30,000 shares of an investee for $6,000,000 when the carrying amount was $4,000,000. Bing attributed the excess to a patent worth $2,000,000 amortized over 10 years. Bing gained control of the investee's board. The investee earned $5,000,000 and paid a $3,000,000 dividend. Journal entries recorded the investment at cost, Bing's 15% share of earnings and dividend, and amortization of the patent. The investment income was Bing's share of earnings less amortization. The year-end carrying amount was the acquisition cost plus income less the cash dividend.

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4K views8 pages

IA Problem 17 4

Bing Company purchased 30,000 shares of an investee for $6,000,000 when the carrying amount was $4,000,000. Bing attributed the excess to a patent worth $2,000,000 amortized over 10 years. Bing gained control of the investee's board. The investee earned $5,000,000 and paid a $3,000,000 dividend. Journal entries recorded the investment at cost, Bing's 15% share of earnings and dividend, and amortization of the patent. The investment income was Bing's share of earnings less amortization. The year-end carrying amount was the acquisition cost plus income less the cash dividend.

Uploaded by

nenzzmaria
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Problem 17-4

By: Kathleen Mae A. Bate


At the beginning of the current year, Bing Company purchased
30,000 shares of an investee’s 200,000 outstanding ordinary shares
for P6,000,000. On that date, the carrying amount of the acquired
shares was P4,000,000.

The entity attributed the excess of cost over carrying amount to


patent with remaining useful life of 10 years.

During the year, Bing Company’s officers gained a majority on


investee’s board of directors. The investee reported earnings of
P5,000,000 for the year and paid dividend of P3,000,000 at year end.
Required:
1. Prepare journal entries to record the transactions for the current
year.
2. Compute the investment income for the current year.
3. Compute the carrying amount of the investment at year-end.
Investment in Associate 6,000,000
Cash 6,000,000

1. Journal
Entries
Investment in Associate 750,000
(P5,000,000x15% )
Investment Income 750,000
Cash 450,000
(P3,000,000x15% )
Investment Income 450,000

1. Journal
Entries
Investment Income 200,000
(P2,000,000/10 years)
Investment in Associate 200,000
2. Investment Share in net income 750,000
Income for the (5,000,000 x 15%)
Excess of cost (200,000)
current year Investment income 550,000
3. Carrying Acquisition cost 6,000,000
Investment income 550,000
amount of the Share in cash dividend ( 450,000 )
investment at Carrying amount of investment 6,100,000
year-end
Thank You!

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