On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000. For the year ending, December 31, McGuire earned income of $48,000 and paid dividends of $14,000.

Question

Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income and dividends received from McGuire.

Answer 1

1. Entry for the purchase of the stock:

Date: January 2
Account Titles: Investment in McGuire Company (debit), Cash (credit)
Amounts: $205,000

2. Entry for Todd Company's share of McGuire income:

Date: December 31
Account Titles: Investment in McGuire Company (debit), Equity in Earnings of McGuire Company (credit)
Amounts: $19,200 (40% * $48,000)

3. Entry for dividends received from McGuire:

Date: December 31
Account Titles: Cash (debit), Investment in McGuire Company (credit)
Amounts: $5,600 (40% * $14,000)