Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2017. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2018. Kulikowski reported net income of $730,000 for 2018. The fair value of Kulikowski's stock was $27 per share at December 31, 2018. (a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2017
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
June 30, 2018
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Dec. 31, 2018
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
(To record dividend.)
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
(To record fair value.)
(b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2017
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
June 30, 2018
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Dec. 31, 2018
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
(To record dividend.)
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
(To record revenue.)
(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?
Fair Value Method
Equity Method
Investment amount
$Jaycie Phelps Inc. acquired 20% of the outstanding
$Jaycie Phelps Inc. acquired 20% of the outstanding
Dividend revenue
Jaycie Phelps Inc. acquired 20% of the outstanding
Jaycie Phelps Inc. acquired 20% of the outstanding
Investment income (income statement)