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Ias 28 Asynch Activity 9-30-20

Lion Inc. purchases 30% of Zombie Corp for P500,000. Throughout the year, Lion makes journal entries to record (1) the initial investment, (2) receipt of dividends from Zombie, and (3) Lion's share of Zombie's net income. At year-end, Lion's investment account balance is P515,000, reflecting a P15,000 increase from the original P500,000 cost due to Lion's 30% portion of Zombie's P100,000 net income for the year.

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437 views1 page

Ias 28 Asynch Activity 9-30-20

Lion Inc. purchases 30% of Zombie Corp for P500,000. Throughout the year, Lion makes journal entries to record (1) the initial investment, (2) receipt of dividends from Zombie, and (3) Lion's share of Zombie's net income. At year-end, Lion's investment account balance is P515,000, reflecting a P15,000 increase from the original P500,000 cost due to Lion's 30% portion of Zombie's P100,000 net income for the year.

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Angelo
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MILLORA, ANGELO JAMES

EXERCISE – PREPARE THE JOURNAL ENTRIES and FILL IN THE BLANKS FOR THE FOLLOWING SITUATIONS:

1. Lion Inc. purchases 30% of Zombie Corp for P500,000. At the end of the year, Zombie Corp
reports a net income of P100,000 and a dividend of P50,000 to its shareholders. When Lion
makes the purchase, it records its investment under “Investments in Associates/Affiliates”, a
long-term asset account. The transaction is recorded at cost.

Investment in Associates_500,000___ _

________Cash_________________500,000

2. Lion receives dividends of (a) __15,000_, which is (b) _30% of P50,000, and records a reduction
in their investment account. The reason for this is that they have received money from their
investee. In other words, there is an outflow of cash from the investee, as reflected in the
reduced investment account.
Cash_____________________15,000
____Investment in Associates _______15,000

3. Finally, Lion records the net income from Zombie as an increase to its Investment account.
Investment in Associates_________________30,000_____________
____________________Investment Revenue______30,000________________

100,000 x 30% = 30,000

The ending balance in their “Investments in Associates” account at year-end is (c) 515,000. This
represents a (d) _15,000_ increase from their investment cost.

This reconciles with their portion of Zombie’s retained earnings. Zombie has Net Income of (e)
_100,000_, which is reduced by the (f) _50,000_ dividend. Thus, Zombie’s retained earnings for the year
are (g) _50,000. Lion’s portion of this dividends of (h) _50,000_ is (i) _15,000_.

c. 500,000 + (30,000 – 15,000) = 515,000

d. 515,000 – 500,000 = 15,000

g. (100,000 – 50,000) = 50,000

i. 50,000 x 30% = 15,000

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