On January 1, 2020, Redmond Company purchased 3,000 of the 15,000 outstanding shares of common stock of Decca Computer (DC) Corporation for $80,000 cash as a long-term investment (the only long-term equity invest- ment held). The assets and liabilities of DC Corporation at the date of purchase approximate fair value. During 2020, DC reported net income of $25,000 and declared and paid cash dividends of $10,000. The fair value of DC Corporation at December 31, 2020, was $25 per share. Required a. Prepare the journal entries to record the purchase of the investment, the receipt of dividends, and the year- end adjusting entry, assuming that the investment is recorded under the equity method. b. Record the journal entries assuming instead that Redmond Company opted on the purchase date to account for the investments using the fair value option.

Name: Techwhiff
Address: 1520 Lavalette Ave, Elkins, WV 26241, USA, Elkins, 26241, US
Telephone: +1 681-298-8325
Price range: 10000

Given Purchase of shares 3,000.00 out of 15,000 shares outstanding Percentage of shares held 20% Amount of investment 80,000.00 Amount per share =80000/3000=26.67/- Net income 25,000.00 Cash dividends paid 10,000.00 Fair value as on 31st December 2020 $25 per share a. Equity Method Purchase of investment Investment in DC Stock A/C Dr 80,000.00 To Cash A/C 80,000.00 Net income Investment in DC Stock A/C(25000*20%) Dr 5,000.00 To Revenue from investment 5,000.00 Cash Dividends Received Cash A/C (10000*20%) Dr 2,000.00 To Investment in DC Stock A/c 2,000.00 For fair value change there is no entry in Equity method b.Fair value method Purchase of investment Available for sale securities A/C Dr 80,000.00 To Cash A/C 80,000.00 Net income No entry recorded under Fair value method Cash Dividends Received Cash A/C (10000*20%) Dr 2,000.00 To Dividend Revenue A/C 2,000.00 Fair value Unrealised Holdings Gain or Loss Equity(26.67-25) A/C Dr 5,010.00 To Securities Fair Value Adjustment A/C 5,010.00 .

On January 1, 2020, Redmond Company purchased 3,000 o…

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Given

Purchase of shares	3,000.00	out of 15,000 shares outstanding

Percentage of shares held	20%

Amount of investment	80,000.00
Amount per share	=80000/3000=26.67/-
Net income	25,000.00

Cash dividends paid	10,000.00

Fair value as on 31st December 2020	$25 per share


a. Equity Method
Purchase of investment
Investment in DC Stock A/C Dr	80,000.00
To Cash A/C		80,000.00

Net income
Investment in DC Stock A/C(25000*20%) Dr	5,000.00
To Revenue from investment		5,000.00

Cash Dividends Received
Cash A/C (10000*20%) Dr	2,000.00
To Investment in DC Stock A/c		2,000.00


For fair value change there is no entry in Equity method

b.Fair value method
Purchase of investment
Available for sale securities A/C Dr	80,000.00
To Cash A/C		80,000.00

Net income
No entry recorded under Fair value method

Cash Dividends Received
Cash A/C (10000*20%) Dr	2,000.00
To Dividend Revenue A/C		2,000.00

Fair value

Unrealised Holdings Gain or Loss Equity(26.67-25) A/C Dr	5,010.00
To Securities Fair Value Adjustment A/C		5,010.00

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