Equity Method for Stock Investment

On January 4, Year 1, Ferguson Company purchased 140,000 shares of Silva Company directly from one of the founders for a price of $44 per share. Silva has 350,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $406,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $1,308,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva.

a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1.

Year 1, Jan. 4

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Year 1, July 2

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Year 1, Dec. 31

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b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock.

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