Jimmy Ltd purchased 30% of the shares of Fallon Ltd on 1 January 2018. This purchase resulted
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Question:
Jimmy Ltd purchased 30% of the shares of Fallon Ltd on 1 January 2018. This purchase resulted in Jimmy Ltd having significant influence over Fallon Ltd. Andy Ltd is 60% owned by Jimmy Ltd and is Jimmy’s subsidiary.
Below is information for the year ended 31 December 2020:
- For the year ended 31 December 2020, Fallon Ltd reported profit of $100,000.
- Fallon Ltd.'s total dividends paid out to all shareholders during 2020 amounted to $30,000. This was paid from profits made in 2020.
- During 2020, Fallon sold $15,000 of inventory to Andy Ltd and made profit of $5,000. As at 31 December 2020, 40% of this inventory was still held by Andy Ltd.
Required:
Prepare general journal entries for Jimmy Ltd to record all the above events in 2020 for its investment in Fallon Ltd, using the equity method. Also, use the separate recognition method to account for the profit and dividend that Jimmy shares from Fallon.
Reminder: No marks will be awarded to workings/calculations. Narrations are not required for journal entries.
Please provide your answer in the answer space below. Clearly label the DR and CR sides for each entry
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