Asked by Kiersten Deavy on Jun 20, 2024
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X purchased 40% of Y on January 1, 2019 for $400,000. Y paid dividends of $50,000 in each year. Y's income statements for 2019 and 2020 showed the following.
20192020 Income (loss) before incometaxes $100,000($60,000) Income tax expense (recovery) 40,000(15,000) Net income (loss) $60,000($45,000) Other comprehensive income (net of tax) 20,00025,000 Comprehensive income (loss) $80,000($20,000)\begin{array}{|l|r|r|}\hline & \mathbf{2 0 1 9} & \mathbf{2 0 2 0} \\\hline \text { Income (loss) before incometaxes } & \$ 100,000 & (\$ 60,000) \\\hline \text { Income tax expense (recovery) } & 40,000 & (15,000) \\\hline \text { Net income (loss) } & \$ 60,000 & (\$ 45,000) \\\hline \text { Other comprehensive income (net of tax) } & 20,000 & 25,000 \\\hline \text { Comprehensive income (loss) } & \$ 80,000 & (\$ 20,000)\\\hline\end{array} Income (loss) before incometaxes Income tax expense (recovery) Net income (loss) Other comprehensive income (net of tax) Comprehensive income (loss) 2019$100,00040,000$60,00020,000$80,0002020($60,000)(15,000)($45,000)25,000($20,000) At December 31, 2019, the fair value of the investment was $440,000 and at December 31, 2020 the fair value of the investment was $420,000.
Required:
Prepare X's journal entries for 2019 and 2020, assuming that this is a non-strategic investment and is accounted for at fair value through profit and loss (FVTPL).
Significant Influence
The ability to be involved in the financial and managerial policy decisions of an investment without having controlling authority over those policies.
Fair Value Through Profit or Loss
An accounting approach where financial assets are valued at their current market price, with changes in fair value reported in the profit or loss statement.
Journal Entries
The record of financial transactions in the books of accounts in chronological order, showing the accounts and amounts debited and credited.
- Distinguish between the treatment of investments through the equity method and the accounting under Fair Value Through Profit or Loss and Fair Value Through Other Comprehensive Income.
- Recognize when and how to record entries for investments revalued to fair value.
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Learning Objectives
- Distinguish between the treatment of investments through the equity method and the accounting under Fair Value Through Profit or Loss and Fair Value Through Other Comprehensive Income.
- Recognize when and how to record entries for investments revalued to fair value.
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