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Lion Company purchases an investment in Africa Preserve Company at the purchase price of $6 million cash. This represents 25% of the book value of
Lion Company purchases an investment in Africa Preserve Company at the purchase price of $6 million cash. This represents 25% of the book value of Africa Preserve. During the year, Africa Preserve reports net income of $1,200,000 and pays cash dividends of $100,000. At the end of the year, the fair value of Lion's investment is $6.4 million. Think about the journal entries to be recorded for this investment and answer the following questions. 1. What is the name of the account that will be debited when the initial purchase is recorded? (1 point) 2. What is the debit, the credit and the amount in the journal entry to record Lion's portion of APC's income? (3 points) 3. What is the name of the account and the amount to be credited when the annual dividend is received? (2 points) 4. At what amount will the investment be reported at the end of the year? (2 points)
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