Chapter 12: 7BE (page 610)

Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment.

Expert verified

a) The amount debited to investment is $300,000.

b) The amount of dividend received is $18,000.

c) The unrealized gain on the investment is $54,000.

Step by step solution

Investment means the excess amount used for saving in future

Date	Description	Debit	Credit

A.	Investment	$300,000
	Cash		$300,000
	Being entry to record the purchase of common stock

Date	Description	Debit	Credit

B	Cash	$18,000
	Dividends		$18,000
	Being entry of dividend received

Date	Description	Debit	Credit

C	Investment	$54,000
	Share of equity method in earnings		$54,000
	Being fair value adjustment common stock

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Cost of laboratory research aimed at the discovery of new knowledge	\(120,000
Cost of testing in search for product alternatives	100,000
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Prototype testing subsequent to meeting economic viability	75,000
	\)505,000