Question
On January 1, 2014, Able Company purchased 3,000 of the 10,000 shares of Baker Company for $300,000. This purchase gives Able significant influence over Baker.
On January 1, 2014, Able Company purchased 3,000 of the 10,000 shares of Baker Company for $300,000. This purchase gives Able significant influence over Baker. On this date, Baker's balance sheet showed assets of $800,000 and liabilities of $200,000. All the assets and liabilities of Baker had fair market values equal to book values except for a building which had a fair market value of $500,000 and a book value of $100,000. This building has a 20 year life with no salvage. It is being depreciated using the straight line approach.
Information regarding Baker for 2014, 2015 and 2016 are as follows:
2014:
June 30, paid a $1 per share dividend
December 31, stock is selling for $104 per share
In 2014 Baker reported net income of $36,000
2015:
June 30, paid a $1 per share dividend
December 31, stock is selling for $96 per share
In 2015 Baker reported a loss of $15,000
2016:
June 30 paid a $1 per share dividend
October 5th Able sold the Baker Stock at $98 per share.
REQUIRED: MAKE ALL THE JOURNAL ENTRIES ABLE MAKES WITH RESPECT TO ITS BAKER INVESTMENT IN 2014, 2015 AND 2016 IF ABLE USES THE EQUITY METHOD.
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