Reporting for Equity Method Investments

On January 5, 2023, Fizzy Cola Corporation, headquartered in Minneapolis, MN, acquires 25 percent of the voting stock of Armadillo Bottlers, located in Austin, TX, to support expansion in southwestern U.S. markets. Fizzy Cola pays $15.0 million in cash for the stock. Armadillos book value is $20.0 million at the acquisition date, and its assets and liabilities are fairly stated except for unreported customer-related intangible assets valued at $10 million, with average expected lives of five years. In 2023, Armadillo reports net income of $3.0 million.

Armadillo sells canned and bottled beverages to Fizzy Cola at a markup of 30 percent on cost. Fizzy Cola sells syrup to Armadillo at a markup of 20 percent on cost. At December 31, 2023, Fizzy Colas inventory includes $325,000 in merchandise acquired from Armadillo. Armadillos inventory includes $480,000 in merchandise purchased from Fizzy Cola. Armadillo declares and pays total cash dividends of $500,000 on December 1, 2023. Fizzy Cola accounts for its investment in Armadillo using the equity method.

Required Prepare Fizzy Colas entries to record the above information for 2023.

DebitCredit1/5/2023CashEquity in net income of Armadillo Bottlers (income)Gain on AFS securities (OCI)Gain on trading securities (income)Interest incomeInvestment in AFS securitiesInvestment in Armadillo BottlersInvestment in HTM securitiesInvestment in trading securitiesLoss on AFS securities (OCI)Loss on trading securities (income) Answer CashEquity in net income of Armadillo Bottlers (income)Gain on AFS securities (OCI)Gain on trading securities (income)Interest incomeInvestment in AFS securitiesInvestment in Armadillo BottlersInvestment in HTM securitiesInvestment in trading securitiesLoss on AFS securities (OCI)Loss on trading securities (income) Answer To record investment in Armadillo. 12/1/2023CashEquity in net income of Armadillo Bottlers (income)Gain on AFS securities (OCI)Gain on trading securities (income)Interest incomeInvestment in AFS securitiesInvestment in Armadillo BottlersInvestment in HTM securitiesInvestment in trading securitiesLoss on AFS securities (OCI)Loss on trading securities (income) Answer CashEquity in net income of Armadillo Bottlers (income)Gain on AFS securities (OCI)Gain on trading securities (income)Interest incomeInvestment in AFS securitiesInvestment in Armadillo BottlersInvestment in HTM securitiesInvestment in trading securitiesLoss on AFS securities (OCI)Loss on trading securities (income) Answer To record dividends declared and received. 12/31/2023CashEquity in net income of Armadillo Bottlers (income)Gain on AFS securities (OCI)Gain on trading securities (income)Interest incomeInvestment in AFS securitiesInvestment in Armadillo BottlersInvestment in HTM securitiesInvestment in trading securitiesLoss on AFS securities (OCI)Loss on trading securities (income) Answer CashEquity in net income of Armadillo Bottlers (income)Gain on AFS securities (OCI)Gain on trading securities (income)Interest incomeInvestment in AFS securitiesInvestment in Armadillo BottlersInvestment in HTM securitiesInvestment in trading securitiesLoss on AFS securities (OCI)Loss on trading securities (income) Answer To record equity in Armadillos net income for 2023