Pegory Inc. acquired 20% of the outstanding common shares of Sunderson Inc. on 1/1/18. The purchase price paid was $1,250,000 in cash for 50,000 shares. Sunderson declared and paid a cash dividend of $0.80 per share on June 30, 2018. Sunderson reported net income of $730,000 for 2018.

Instructions:

A) Prepare the journal entries for Pegory in 2018, assuming that Pegory cannot exert significant influence over Sunderson and Sunderson is not an actively traded stock. (cost method)

B) Prepare the journal entries for Pegory in 2018, assuming that Pegory cannot exert significant influence over Sunderson and that the fair value of Sunderson's shares in the active market is $27 per share on 12/31/18. Securities must be classified as available for sale. (cost method)

C) Prepare the journal entries for Pegory in 2018, assuming that Pegory can exert significant influence over Sunderson. (Equity method)

Answer rating: 100% (QA)

A Cost Method Jan 1 2018 Pegory Inc Dr 1250000 Cash Cr 1250000 Purchase of 50000 shares of Sunderson ... View the full answer