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    Prepare the entry to record the original investment

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    27. (6 points) On July 1, 2011, Mountain Systems acquired 8,000 shares of Precision Services' 40,000 outstanding common shares at a cost of $240,000. The book value of Precision's net assets on that date was $880,000. The following data pertain to Precision Services for 2011:

    Net income reported in 2011:
    January 1 - June 30 ................................... $28,000
    July 1 - December 31 .................................. 36,000
    Total ............................................... $64,000

    Cash dividends declared and paid:
    January 1 - June 30 ................................... $30,000
    July 1 - December 31 .................................. 30,000
    Total ............................................... $60,000

    Any excess of cost over book value is attributable to depreciable properties the market value of which exceeds the carrying value. The remaining life of the equipment is 10 years.

    (1) Prepare the entry to record the original investment on July 1.
    (2) Prepare the necessary entries (other than acquisition) for 2011 on Mountain Systems' books using the cost method.
    (3) Prepare the necessary entries (other than acquisition) for 2011 on Mountain Systems' books using the equity method.

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    ANSWERS

    Question 1
    DR: Investment in stocks 240,000
    CR: Cash 240,000

    Question 2
    DR: ...

    Solution Summary

    The expert prepares the entry to record the original investments.

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