Presenting Investment Revenue on the Statement of Cash Flows

On January 1, Allen Corporation purchased 30% of the 24,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $19,200 and declared and paid dividends of $6,400. As of December 31, common shares of Towne Corporation were trading at $20 per share.

Required

a. Assume that Allen Corporation had significant influence over Towne Corporation. Record the entries for the year for Allen Corporation.

Date	Account Name	Dr.	Cr.
Jan. 1	CashInvestment in StockInvestment IncomeDividend RevenueInterest Revenue
	CashInvestment in StockInvestment IncomeDividend RevenueInterest Revenue
	(To record investment purchase)
Dec. 31	CashInvestment in StockInvestment IncomeDividend RevenueInterest Revenue
	CashInvestment in StockInvestment IncomeDividend RevenueInterest Revenue
	(To record investment income)
Dec. 31	CashInvestment in StockInvestment IncomeDividend RevenueInterest Revenue
	CashInvestment in StockInvestment IncomeDividend RevenueInterest Revenue
	(To record receipt of dividends)

b. Indicate how the investment transactions would affect the statement of cash flows for the year, assuming that the company uses the indirect method in reporting cash flows from operating activities.

• Note: Indicate a subtraction in the statement of cash flows with a negative sign in the Amount column.
• Note: If an item is not included in the statement of cash flows, enter zero (leave blank) in the Amount column, and enter "N/A" in the Cash Flow Section column.

Item	Amount	Cash Flow Section
Excess of investment income over dividends received		Operating activities sectionInvesting activities sectionFinancing activities sectionN/A
Purchase of investment in stock		Operating activities sectionInvesting activities sectionFinancing activities sectionN/A