Pirate Corporation purchased 100 percent ownership of Ship Company on January 1, 20X5, for $271,000. On that date, the book value of Ship’s reported net assets was $209,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 10 years. Net income and dividend payments of Ship in the following periods were as shown below: Year Net Income Dividends 20X5 $ 25,000 $ 16,000 20X6 45,000 26,000 20X7 25,000 42,000 Required: Prepare journal entries on Pirate Corporation’s books relating to its investment in Ship Company for each of the three years, assuming it accounts for the investment using the equity method.

Pirate Corporation purchased 100 percent ownership of Ship Company on January 1, 20X5, for $271,000. On that date, the book value of Ship’s reported net assets was $209,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 10 years. Net income and dividend payments of Ship in the following periods were as shown below: Year Net Income Dividends 20X5 $ 25,000 $ 16,000 20X6 45,000 26,000 20X7 25,000 42,000 Required: Prepare journal entries on Pirate Corporation’s books relating to its investment in Ship Company for each of the three years, assuming it accounts for the investment using the equity method.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 6RE: Oz Corporation has the following assets at year-end: Patents (net), 26,000; Land, 50,000; Buildings,...

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Year	Net Income	Dividends
20X5	$ 25,000	$ 16,000
20X6	45,000	26,000
20X7	25,000	42,000

Required:

Prepare journal entries on Pirate Corporation’s books relating to its investment in Ship Company for each of the three years, assuming it accounts for the investment using the equity method.

Definition Definition Method of recording financial transactions in the book of original entry by debiting and crediting the accounts affected by a transaction using the golden rules of accrual accounting.

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