Accounting for investment

The following information is available for Flip Corporation for the year ended December 31, 2014:

 

Beginning retained earnings                                                         $   340,000

Cost of goods sold                                                                             620,000

Declared cash dividends                                                                     50,000

Operating expenses                                                                           170,000

Other expenses and losses                                                                 40,000

Other revenues and gains                                                                   60,000

Sales                                                                                               1,000,000

Tax rate                                                                                                   30%

 

 

Instructions:

1.         Prepare a corporate income statement in good form.

 

 

2.         Prepare a retained earnings statement for the year.

Question 2: 10 points:

January 1, 2014 Flip Company purchased 35,000 shares of common stock of Flop Corporation as a long-term investment for $900,000. December 31, 2014, Flop Corporation reported net income of $300,000 and paid dividends of $100,000.

 

Instructions:

a.      Assuming that the 35,000 shares represent a 10% interest in Flop Corporation:

1.   Prepare the journal entry to record the investment in Flop stock.

2.   Prepare any entries that Flip Company should make in accounting for its investment in Flop stock during the year.

3.   What is the balance of the Stock Investments account on Flip Company’s books at the end of the year?

 

b.      Repeat requirement (a) above except assume that the 35,000 shares represent a 20% interest in Flop Corporation.