Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on Raymore for the two years ending December 31, Year 6, is as follows: Year Net Income Dividends Paid Market Value per Share at end of period Year 5 $ 25,000 $ 13,000 $22.00 Year 6 28,000 14,000 22.60 At December 31, Year 6, Raymore had some inventory that was purchased from Melville. Melville had recorded a gross profit of $1,300 on the sale of this inventory. This gross profit should be deducted from Melville's Year 6 profit and investment account under the equity method. On January 1, Year 7, Melville sold its investment in Raymore for $47,000. Required: (a) Calculate the balance in the investment account at December 31, Year 6 under each of the cost and equity methods. (Omit $ sign in your response.) Investment account at end of Year 6 under cost method $ Investment account at end of Year 6 under equity method $ (b) Calculate the investment income for Year 6 under each of the cost and equity methods. (Omit $ sign in your response.) Investment income for Year 6 under cost method $ Investment income for Year 6 under equity method $ (c) Prepare the journal entries for the sale of the shares on January 1, Year 7 under each of the cost and equity methods. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on Raymore for the two years ending December 31, Year 6, is as follows:

Year	Net Income	Dividends Paid	Market Value per Share at end of period
Year 5	$	25,000		$	13,000	$22.00
Year 6		28,000			14,000	22.60

At December 31, Year 6, Raymore had some inventory that was purchased from Melville. Melville had recorded a gross profit of $1,300 on the sale of this inventory. This gross profit should be deducted from Melville's Year 6 profit and investment account under the equity method. On January 1, Year 7, Melville sold its investment in Raymore for $47,000.

Required:

(a) Calculate the balance in the investment account at December 31, Year 6 under each of the cost and equity methods. (Omit $ sign in your response.)


Investment account at end of Year 6 under cost method	$
Investment account at end of Year 6 under equity method	$

(b) Calculate the investment income for Year 6 under each of the cost and equity methods. (Omit $ sign in your response.)


Investment income for Year 6 under cost method	$
Investment income for Year 6 under equity method	$

(c) Prepare the journal entries for the sale of the shares on January 1, Year 7 under each of the cost and equity methods. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

PLEASE DO NOT GIVE SOLUTION IN IMAGE FORMAT

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