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23 February, 22:23

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

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  1. 23 February, 22:45
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    The entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire would be as follows:

    debit credit

    jan 2

    Investment in equity $205,000

    cash $205,000

    [Investment made]

    dec3 1

    Investment in equity $19,200

    share in net income of affilates $19,200

    [share in net income recorded]

    dec 31

    cash $5,600

    dividend income $5,600

    [dividend received]

    Explanation:

    The entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire would be as follows:

    debit credit

    jan 2

    Investment in equity $205,000

    cash $205,000

    [Investment made]

    dec3 1

    Investment in equity $19,200

    share in net income of affilates $19,200

    [share in net income recorded]

    share in net income of affilates=$48,000*0.40=$19,200

    dec 31

    cash $5,600

    dividend income $5,600

    [dividend received

    dividend income=14000*0.40=$5,600
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