Wellman Company acquired 30% of the outstanding common stock of Grinwold Inc. on January 1, 2022, by

Question:

Wellman Company acquired 30% of the outstanding common stock of Grinwold Inc. on January 1, 2022, by paying $1,800,000 for 60,000 shares. Grinwold declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2022. Grinwold reported net income of $800,000 for the year.

Instructions

a. Prepare the journal entries for Wellman Company for 2022, assuming Wellman cannot exercise signifi cant influence over Grinwold. (Use the cost method.)

b. Prepare the journal entries for Wellman Company for 2022, assuming Wellman can exercise signifi - cant influence over Grinwold. (Use the equity method.)

c. The board of directors of Wellman Company is confused about the diff erences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2022.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...