Mike Ltd purchased the outstanding voting shares of Sam Ltd at the beginning of 2009 for...

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Mike Ltd purchased the outstanding voting shares of Sam Ltd at the beginning of 2009 for $387,000. At the time of purchase, Sam's total stockholders' equity amounted to $475,000. Income and dividend distributions for Sam from 2009 through 2011 are as follows: 2009 2010 2011 Net income(loss) $63,500 $52,500 $(55,000) Dividend distribution $25,000 $50,000 $35,000 Required: Prepare journal entries for Mike Ltd. from the date of purchase through 2011 to account for its investment in Sam Ltd under each of the following assumptions: 1. Cost Method (assume 20% investment) 2. Equity Method (assume 40% investment) 20 Marks 20 Marks Mike Ltd purchased the outstanding voting shares of Sam Ltd at the beginning of 2009 for $387,000. At the time of purchase, Sam's total stockholders' equity amounted to $475,000. Income and dividend distributions for Sam from 2009 through 2011 are as follows: 2009 2010 2011 Net income(loss) $63,500 $52,500 $(55,000) Dividend distribution $25,000 $50,000 $35,000 Required: Prepare journal entries for Mike Ltd. from the date of purchase through 2011 to account for its investment in Sam Ltd under each of the following assumptions: 1. Cost Method (assume 20% investment) 2. Equity Method (assume 40% investment) 20 Marks 20 Marks

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1 Cost Method The Cost method of accounting is used for recording the investments of a company in financial statements This method is used when a company owns a 20 or less than 20 stake in the other c... View the full answer