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Callas Corporation paid $380,000 to acquire 40 percent ownership of Thinbill Company on January 1, 20X9. The amount paid was equal to Thinbill’s underlying book value. During 20X9, Thinbill reported operating income of $45,000 and income of $20,000 from gains on derivative contracts that were designated as cash flow hedges, so these gains were reported in Other Comprehensive Income (OCI). Thinbill paid dividends of $9,000 on December 10, 20X9.

Required:
a. Give all journal entries that Callas Corporation recorded in 20X9, associated with its investment in Thinbill Company.
b. Give all closing entries at December 31, 20X9, associated with its investment in Thinbill Company.

Respuesta :

Parrain

Answer: Please refer to Explanation

Explanation:

A.

January 1 20X9

DR Investment in Thinbill Company $380,000

CR Cash $380,000

(To record Investment in Thinbill Company)

DR Investment in Thinbill Company $18,000

CR Income from Thinbill Company $18,000

(To record income from Thinbill company)

DR Investment in Thinbill Company $8,000

CR Unrealised gain on Investment $8,000

(To record share of OCI reported by Thinbill Company)

DR Cash $3,600

CR Dividend $3,600

(To record dividend received from Thinbill Company)

Workings

Income from Thinbill Comapny

Callas owns 40% of Thinbill company and so is entitled to 40% of income which is,

= 40% x 45,000

= $18,000

Dividends

= 9,000 x 40%

= $3,600

Unrealised Gain on Income

= 20,000 x 40%

= $8,000

b. The closing entries are as follows,

DR Income from Thinbill Company $18,000

CR Retained Earnings $18,000

(To recognise income from Thinbill Company)

DR Unrealised Gain on Investment $8,000

CR Accumulated OCI Income from Investee (Thinbill Company) $8,000

(To record accumulated OCI income)

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