Saxton Corporation purchased 25 percent of Taylor Company's voting stock on January 1, 2013, for $18 million in cash. At the date of acquisition, Taylor reported its total assets at $360 million and its total liabilities at $336 million. Investigation revealed that Taylor's plant and equipment (15-year life) was overvalued by $10.8 million and it had an unreported customer database (2-year life) valued at $3 million. Taylor declares and pays $600,000 in dividends and reports net income of $1,500,000 in 2016. Required Prepare the necessary journal entries on Saxton's books to report the above information for 2016 assuming Saxton uses the equity method to report its investment.

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andromache andromache · Answer 1 · 2020-09-18T04:17:25+02:00

Answer and Explanation:

The Journal entry is shown below:-

a. Cash Dr, $150,000 ($600,000 × 25%)

To Investment in Taylor $150,000

(Being receipts of dividends is recorded)

b. Investment in Taylor $195,000

Equity in net income of Taylor $195,000

(Being earning of the investee is recorded)

Working note:-

Equity in net income of Taylor = Santon's share of Taylor's reported income - Revaluation adjustment

= ($1,500,000 × 25%) - ($10,800,000 ÷ 15 × 25%)

= $375,000 - $180,000

= $195,000

aquialaska aquialaska · Answer 2 · 2022-01-20T09:16:57+01:00

According to the question, calculation of the given data are as follows,

Equity of Taylor = Saxton's share of Taylor's - Adjustment in revaluation

By putting the value, we get

= [($1,500,000 [tex]\times[/tex] 25%) - (($10,800,000 [tex]\div[/tex] 15) [tex]\times[/tex] 25%)]

= $375000 - $180000

= $195,000

Journal Entry for the given calculation are as follows,

Cash A/c Dr. $150,000 [working = $600,000 [tex]\times[/tex] 25%]

To, Taylor investment A/c $150,000

(Receipts of dividends is being recorded)

Taylor Investment A/c Dr. $195,000

To, Taylor net income equity A/c $195,000

( Invester earning is being recorded)

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