On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000. For the year ending December 31, McGuire earned income of $48,000 and paid dividends of $14,000. Required: Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire.

The entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire would be as follows:

                                 debitcredit

jan 2

Investment in equity$205,000  

cash                                $205,000

[Investment made]  

dec3 1

Investment in equity$19,200  

share in net income of affilates  $19,200

[share in net income recorded]

dec 31

cash                        $5,600  

dividend income                          $5,600

[dividend received]

Explanation:

The entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received from McGuire would be as follows:

                                 debitcredit

jan 2

Investment in equity$205,000  

cash                                $205,000

[Investment made]  

dec3 1

Investment in equity$19,200  

share in net income of affilates  $19,200

[share in net income recorded]

share in net income of affilates=$48,000*0.40=$19,200

dec 31

cash                        $5,600  

dividend income                          $5,600

[dividend received

dividend income=14000*0.40=$5,600

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