Prepare entries under cost and equity methods, and prepare a memorandum.

PH.4 (LO 2) Writing Wellman Company acquired 30% of the outstanding common stock of Grinwold Inc. on January 1, 2022, by paying $1,800,000 for 60,000 shares. Grinwold declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2022. Grinwold reported a net income of $800,000 for the year.

a. Total dividend revenue for 2022 $60,000 b. Revenue from stock investments $240,000

Instructions

a. Prepare the journal entries for Wellman Company for 2022, assuming Wellman cannot exercise significant influence over Grinwold. (Use the cost method.) b. Prepare the journal entries for Wellman Company for 2022, assuming Wellman can exercise significant influence over Grinwold. (Use the equity method.) c. The board of directors of Wellman Company is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2022.

Paul D. Kimmel. Accounting: Tools for Business Decision Making, 7th Edition (p. H-18).