Solution

.pdf
School
University of Notre Dame **We aren't endorsed by this school
Course
AA 0P
Subject
Finance
Date
Nov 19, 2023
Pages
5
Uploaded by phuongnhu1503 on coursehero.com
(a) (i) Comprehensive income year 5 = 51,800 +2,400 + 11,400 = 65,600 Comprehensive income year 6 = 148,000 + 29,600 = 177,600 January 1, Year 5 Investment in Stergis 1,850,000 Cash 1, 850,000 To record purchase of 25% of Stergis. December 31, Year 5 Investment in Stergis 12,950 Equity method income 12,950 To record 25% of Stergis' Year 5 income before DO 25% x $51,800 = $12,950 Investment in Stergis 2,850 OCI - Equity method income 2,850 To record 25% of Stergis' Year 5 OCI 25% x $11,400 = $2,850 Investment In Stergis 600 Discontinued Operations - Equity Method Income 600 To record Blake's share of DO income year 5 25% x 2,400 OR use your amount for comprehensive income to help you do a compound journal entry at Dec 31, year 5: Investment in Stergis 16,400 (.25 x 65,600) Equity Income (OCI - associate) 2,850 Equity Income (DO gain - associate) 600 Equity Income (associate) 12,950 Cash 18,500 Investment in Stergis 18,500 To record 25% of Stergis's Year 5 dividends. 25% x $74,000 = $18,500
December 31, Year 6 Investment in Stergis 37,000 Equity method income 37,000 To record 25% of Stergis' Year 6 net income 25% x $148,000 = $37,000 Investment in Stergis 7,400 OCI - Equity method income 7,400 To record 25% of Stergis' Year 6 OCI 25% x $29,600 = $7,400 OR use your amount for comprehensive income to help you do a compound journal entry at Dec 31 year 6: Investment in Stergis 44,400 (.25 x 177,600) Equity Income (OCI - associate) 7,400 Equity Income (associate) 37,000 Cash 18,500 Investment in Stergis 18, 500 To record 25% of Stergis' Year 6 dividends. 25% x $74,000 = $18,500
Blake should disclose the following with respect to its investment in Stergis: The name and principal place of business of the associate The method used to report the investment in the associate Equity method income from Blake's investment in Stergis should be reported separately on the income statement and the carrying amount of this investment should be reported separately on the balance sheet The nature of its relationship with Stergis and its percentage ownership Summarized financial information for Stergis, including the aggregated amounts of assets, liabilities, revenues, and net income Nature and extent of any significant restrictions on the ability of Stergis to transfer funds to Blake in the form of cash dividends, or to repay loans or advances made by the entity; and Contingent liabilities incurred relating to its interests in associates (a)(ii) Prepare statements of comprehensive income for each of years 5 and 6 Blake Corporation Statement of Comprehensive Income One year ended Year 5 Sales Revenue $1,000,000 Equity Method Income 12,950 1,012,950 Operating Expenses 300,000 Income before tax 712,950 Income Tax Expense 140,000 Income before discontinued op. 572,950 Discontinued op. gain - associate 600 Net Income 573,550 OCI - associate 2,850 Comprehensive Income $576,400 Blake Corporation Statement of Comprehensive Income One year ended Year 6 Sales Revenue $1,300,000 Equity Method Income 37,000 1,337,000 Operating Expenses 400,000 Income before tax 937,000 Income Tax Expense 180,000 Net Income 757,000 OCI - associate 7,400 Comprehensive Income $764,400
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