X purchased 40% of Y on January 1, 2019 for $400,000. Y paid dividends of $50,000 in each year. Y's income statements for 2019 and 2020 showed the following. 2019 2020 Income (loss) before incometaxes $ 100 , 000 ( $ 60 , 000 ) Income tax expense (recovery) 40 , 000 ( 15 , 000 ) Net income (loss) $ 60 , 000 ( $ 45 , 000 ) Other comprehensive income (net of tax) 20 , 000 25 , 000 Comprehensive income (loss) $ 80 , 000 ( $ 20 , 000 ) \begin{array}{|l|r|r|}\hline & \mathbf{2 0 1 9} & \mathbf{2 0 2 0} \\hline ext { Income (loss) before incometaxes } & \$ 100,000 & (\$ 60,000) \\hline ext { Income tax expense (recovery) } & 40,000 & (15,000) \\hline ext { Net income (loss) } & \$ 60,000 & (\$ 45,000) \\hline ext { Other comprehensive income (net of tax) } & 20,000 & 25,000 \\hline ext { Comprehensive income (loss) } & \$ 80,000 & (\$ 20,000)\\hline\end{array} Income (loss) before incometaxes Income tax expense (recovery) Net income (loss) Other comprehensive income (net of tax) Comprehensive income (loss) 2019 $100 , 000 40 , 000 $60 , 000 20 , 000 $80 , 000 2020 ( $60 , 000 ) ( 15 , 000 ) ( $45 , 000 ) 25 , 000 ( $20 , 000 ) At December 31, 2019, the fair value of the investment was $440,000 and at December 31, 2020 the fair value of the investment was $420,000.Required:Prepare X's journal entries for 2019 and 2020, assuming that this is a non-strategic investment and is accounted for at fair value through profit and loss (FVTPL).

Question

X purchased 40% of Y on January 1, 2019 for $400,000. Y paid dividends of $50,000 in each year. Y's income statements for 2019 and 2020 showed the following. 2019 2020  Income (loss) before incometaxes  $ 100 , 000 ( $ 60 , 000 )  Income tax expense (recovery)  40 , 000 ( 15 , 000 )  Net income (loss)  $ 60 , 000 ( $ 45 , 000 )  Other comprehensive income (net of tax)  20 , 000 25 , 000  Comprehensive income (loss)  $ 80 , 000 ( $ 20 , 000 ) \begin{array}{|l|r|r|}\hline  &  \mathbf{2 0 1 9}  &  \mathbf{2 0 2 0} \\hline 	ext { Income (loss) before incometaxes }  &  \$ 100,000  &  (\$ 60,000) \\hline 	ext { Income tax expense (recovery) }  &  40,000  &  (15,000) \\hline 	ext { Net income (loss) }  &  \$ 60,000  &  (\$ 45,000) \\hline 	ext { Other comprehensive income (net of tax) }  &  20,000  &  25,000 \\hline 	ext { Comprehensive income (loss) }  &  \$ 80,000  &  (\$ 20,000)\\hline\end{array}  Income (loss) before incometaxes   Income tax expense (recovery)   Net income (loss)   Other comprehensive income (net of tax)   Comprehensive income (loss)  ​ 2019 $100 , 000 40 , 000 $60 , 000 20 , 000 $80 , 000 ​ 2020 ( $60 , 000 ) ( 15 , 000 ) ( $45 , 000 ) 25 , 000 ( $20 , 000 ) ​ ​   At December 31, 2019, the fair value of the investment was $440,000 and at December 31, 2020 the fair value of the investment was $420,000.Required:Prepare X's journal entries for 2019 and 2020, assuming that this is a non-strategic investment and is accounted for at fair value through profit and loss (FVTPL).

Kirsten Werner · Accepted Answer

Final Answer :  2019 :  Debit   Credit   Investment in Y  $ 400 , 000  Cash  $ 400 , 000  To record X’s purchase of Y   Cash  $ 20 , 000  Dividend Revenue  $ 20 , 000  To record receipt of Dividends from Y-2019   Investment in Y  $ 40 , 000  Investment revaluation gain (net income)  $ 40 , 000  To record revaluation at December  31 , 2019  2020:   Debit   Credit   Cash  $ 20 , 000  Dividend Revenue  $ 20 , 000  To record receipt of Dividends from  Y − 2020  Investment revaluation loss (net income)  $ 20 , 000  Investment in  Y $ 20 , 000  To record revaluation at December  31 , 2020 \begin{array}{|l|r|r|}\hline 2019:  &  	ext { Debit }  &  	ext { Credit } \\hline 	ext { Investment in Y }  &  \$ 400,000  &  \\hline 	ext { Cash }  &   &  \$ 400,000 \\hline 	ext { To record X ' s purchase of Y }  &   &  \\hline 	ext { Cash }  &  \$ 20,000 \\hline 	ext { Dividend Revenue }  &   &  \$ 20,000 \\hline 	ext { To record receipt of Dividends from Y-2019 }  &   &  \\hline 	ext { Investment in Y }  &  \$ 40,000  &  \\hline 	ext { Investment revaluation gain (net income) }  &   &  \$ 40,000 \\hline 	ext { To record revaluation at December } 31,2019  &   &  \\hline 	ext { 2020: }  &  	ext { Debit }  &  	ext { Credit } \\hline 	ext { Cash }  &  \$ 20,000 \\hline 	ext { Dividend Revenue }  &   &  \$ 20,000 \\hline 	ext { To record receipt of Dividends from } \mathrm{Y}-2020  &   &  \\hline 	ext { Investment revaluation loss (net income) }  &  \$ 20,000 \\hline 	ext { Investment in } \mathrm{Y}  &   &  \$ 20,000 \\hline 	ext { To record revaluation at December } 31,2020  &   &  \\hline\end{array} 2019 :  Investment in Y   Cash   To record X’s purchase of Y   Cash   Dividend Revenue   To record receipt of Dividends from Y-2019   Investment in Y   Investment revaluation gain (net income)   To record revaluation at December  31 , 2019  2020:   Cash   Dividend Revenue   To record receipt of Dividends from  Y − 2020  Investment revaluation loss (net income)   Investment in  Y  To record revaluation at December  31 , 2020 ​  Debit  $400 , 000 $20 , 000 $40 , 000  Debit  $20 , 000 $20 , 000 ​  Credit  $400 , 000 $20 , 000 $40 , 000  Credit  $20 , 000 $20 , 000 ​ ​

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