On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $500,000

On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $500,000. For the year ended December 31, Fain Company earned income of $140,000 and paid dividends of $50,000. Prepare the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.


Answer:

Jan. 2 Investment in Fain Company Stock 500,000
Cash 500,000
Dec. 31 Investment in Fain Company Stock 56,000
Income of Fain Company 56,000
Recorded 40% of Fain Company income,
40% × $140,000.
31 Cash* 20,000
Investment in Fain Company Stock 20,000
*40% × $50,000