Question
Vodka Ltd, a parent entity, acquires 26% interest in Tonic Ltd for a cash consideration of $54200 on 1 July 2019.On the date of acquisition,
Vodka Ltd, a parent entity, acquires 26% interest in Tonic Ltd for a cash consideration of $54200 on 1 July 2019.On the date of acquisition, the shareholders' equity value of Tonic Ltd is $220000 represented by:
$
Share capital
132000
Retained earnings
88000
Additional information:
For the year ended 30 June 2020 Tonic Ltd reported an after-tax profit of $15400 from which it declared a dividend of $5000.The dividend was paid on 10 October, 2020.
For the year ended 30 June 2021, Tonic Ltd reported an after-tax profit of $30000 from which it declared a dividend of $4000.
REQUIRED:
(i) Prepare the journal entries in theconsolidation journalto recognise the investment for the year ended30 June 2020.
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To record the initial investment
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To account for the profit earned by the associate.
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To account for the dividend declared by the associate.
(ii) Prepare the journal entries in the consolidation journal to recognise the investment at30 June 2021.(3 marks)
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To account for the previous year's effects on the investment.
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To account for the dividend paid by the associate this year.
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To account for the profit earned by the associate.
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Dr
Answer
Answer
Cash
Dividend income
Dividend receivable
Investment in Tonic Ltd
Investment in Vodka Ltd
Retained earnings
Share of associate's profit
NULL
Cr
Answer
To account for the dividend declared by the associate.
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Fundamental Managerial Accounting Concepts
Authors: Thomas Edmonds
6th Edition
78110890, 978-0078110894
