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Ella Ltd purchased 30% of the shares of Monica Ltd on 1 January 20X2 for cash of $320,000. This purchase resulted in Ella Ltd having
Ella Ltd purchased 30% of the shares of Monica Ltd on 1 January 20X2 for cash of $320,000. This purchase resulted in Ella Ltd having significant influence over Monica Ltd. Additional information is provided below: - For the year ended 31 December 20X2, Monica Ltd reported profit of $100,000 and revalued its assets upwards by $50,000. - Monica Ltd's total dividends paid out to all shareholders during 20X2 amounted to $70,000. This was paid from profits made in 20X2. - Billy Ltd is 90% owned by Ella Ltd and is Ella's subsidiary. - During 20X2, Monica sold $120,000 of inventory to Billy Ltd and made profit of $60,000. As at 31 December 20X2, 20% of this inventory was still held by Billy Ltd. Required: a) Prepare journal entries for Ella Ltd in 202 to account for the above events using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Ella shares from Monica. b) Prepare journal entries for Ella Ltd in 20X2 to account for its investment in Monica Ltd using the Cost Method. Note: 1) Use the provided journal entry template for your response. 2) Workings/calculations or narrations are NOT required. 3) While the template provides sufficient space, if you encounter formatting issues or lack space, you can record your journal entries below the template. Make sure to indicate whether it's a Debit (DR) or Credit (CR) entry
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