P2-2 Journal entries for midyear investment (cost and equity methods)

Pam Company paid $440,000 for an 80 percent interest in Sun Company on July 1, 2016, when Sun had total equity of $220,000. Sun Company reported earnings of $20,000 for 2016 and declared dividends of $32,000 on November 1, 2016.

REQUIRED: Give the entries to record these facts on the books of Pam Company: 1. Assuming that Pam Company uses the cost method of accounting for its subsidiaries. 2. Assuming that Pam Company uses the equity method of accounting for its subsidiaries. (Any difference

between investment cost and book value acquired is to be assigned to equipment and amortized over a 10-year period.)

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