Ella Ltd purchased 20% of the shares of Monica Ltd on 1 January 20X2. This purchase resulted in Ella Ltd having significant influence over Monica Ltd. Additional information is provided below: • For the year ended 31 December 20X2, Monica Ltd reported profit of $200,000 and revalued its assets upwards by $30,000. • Monica Ltd's total dividends paid out to all shareholders during 20X2 amounted to $120,000. This was paid from profits made in 20X2. • Billy Ltd is 70% owned by Ella Ltd and is Ella's subsidiary. • During 20X2, Monica sold $80,000 of inventory to Billy Ltd and made profit of $25,000. As at 31 December 20X2, 40% of this inventory was still held by Billy Ltd. Required: a) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Ella shares from Monica. (Using the provided journal entry template to enter your answer; workings/calculations or narrations are NOT required.) b) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Cost Method.
Ella Ltd purchased 20% of the shares of Monica Ltd on 1 January 20X2. This purchase resulted in Ella Ltd having significant influence over Monica Ltd. Additional information is provided below: • For the year ended 31 December 20X2, Monica Ltd reported profit of $200,000 and revalued its assets upwards by $30,000. • Monica Ltd's total dividends paid out to all shareholders during 20X2 amounted to $120,000. This was paid from profits made in 20X2. • Billy Ltd is 70% owned by Ella Ltd and is Ella's subsidiary. • During 20X2, Monica sold $80,000 of inventory to Billy Ltd and made profit of $25,000. As at 31 December 20X2, 40% of this inventory was still held by Billy Ltd. Required: a) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Ella shares from Monica. (Using the provided journal entry template to enter your answer; workings/calculations or narrations are NOT required.) b) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Cost Method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Ella Ltd purchased 20% of the shares of Monica Ltd on 1 January 20X2. This purchase resulted in Ella Ltd having significant
influence over Monica Ltd.
Additional information is provided below:
• For the year ended 31 December 20X2, Monica Ltd reported profit of $200,000 and revalued its assets upwards by
$30,000.
• Monica Ltd's total dividends paid out to all shareholders during 20X2 amounted to $120,000. This was paid from profits
made in 20X2.
• Billy Ltd is 70% owned by Ella Ltd and is Ella's subsidiary.
• During 20X2, Monica sold $80,000 of inventory to Billy Ltd and made profit of $25,000. As at 31 December 20X2, 40% of
this inventory was still held by Billy Ltd.
Required:
a) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Equity Method. Use the
Reclassification Method to account for the profit and dividends that Ella shares from Monica. (Using the provided journal
entry template to enter your answer; workings/calculations or narrations are NOT required.)
b) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Cost Method.
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