Question
On January 1, Year 3, JoJo Co purchased 15,000 of the voting shares of Bo Inc. for $20 per share. Bo has 150,000 voting shares
On January 1, Year 3, JoJo Co purchased 15,000 of the voting shares of Bo Inc. for $20 per share. Bo has 150,000 voting shares outstanding. Management elected to use FVOCI. Bo paid dividends of $120,000 on December 22, Year 3. Bo's net income in Year 3 was $300,000. At December 31, Year 3, the shares of Bo Inc. were trading at $21.50 per share.
On March 1, Year 4, JoJo purchased additional 30,000 shares of Bo Inc. in the open market for $540,000. On March 1, Year 4, Bo's common shares were $800,000 and Retained Earnings were $660,000. Bo's carrying values equaled their fair market values on this date, except for a machine, which had a fair value of $200,000 and a carrying value of $245,000. The useful life of this asset was five years.
During Year 4, JoJo sold $210,000 inventory to Bo with a profit margin of 25%. 60% of this inventory was sold by the end of Year 4. On December 30 of Year 4, Bo sold a machine to JoJo for $520,000. The carrying value of the machine on this date was $560,000. Bo reported net income of $640,000 in Year 4, earned evenly over the year. Bo declared dividends of $170,000 on December 1, Year 4. Bo Inc. shares were trading for $17.75 per share at December, 31, Year 4.
Income Tax rate is 20%. Year end for both companies is December 31.
Required: Descriptions for journal entries are not required.
- Prepare JoJo's journal entries for Year 3 and Year 4 relating to its investment in Bo.
- Prepare the journal entry, if necessary, if the shares of Bo's shares were trading for $17.20 each at January 2, Year 5 and the decline was considered a permanent decline. If no journal entry is required, briefly explain why.
Step by Step Solution
3.42 Rating (174 Votes )
There are 3 Steps involved in it
Step: 1
Year 3 Journal Entries for JoJo Co 1 January 1 Year 3 Purchase of 15000 shares of Bo Inc at 20 per s...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started