On January 2, Leonberger Company acquired 30% of the outstanding stock of ARO Company for $300,000

On January 2, Leonberger Company acquired 30% of the outstanding stock of ARO Company for $300,000. For the year ended December 31, ARO Company earned income of $60,000 and paid dividends of $15,000. Prepare the entries for Leonberger Company for the purchase of the stock, the share of ARO income, and the dividends received from ARO Company.


Answer:

Jan. 2 Investment in ARO Company Stock 300,000
Cash 300,000
Dec. 31 Investment in ARO Company Stock 18,000
Income of ARO Company 18,000
Recorded 30% of ARO Company
income, 30% × $60,000.
31 Cash* 4,500
Investment in ARO Company Stock 4,500
*30% × $15,000