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17 October, 21:15

Suppose that on January 6, 2018, Excel Motors paid $240,000,000 for its 45% investment in Dynamic Motors. Excel has significant influence over Dynamic after the purchase. Assume Dynamic earned net income of $10,000,000 and paid cash dividends of $15,000,000 to all outstanding stockholders during 2018. (Assume all outstanding stock is voting stock.) Read the requirements Requirement 1. What method should Excel Motors use to account for the investment in Dynamic Motors? Give your reasoning. Excel Motors should use the ▼ method to account for its investment in Dynamic Motors because the investment Requirement 2. Journalize all required 2018 transactions related to Excel Motors's Dynamic investment. Include an explanation for each entry

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  1. 17 October, 21:18
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    Answer: provided in the explanation segment

    Explanation:

    To begin we will answer each part accordingly.

    For Requirement 1:

    I would say that Excel Motors should use the Equity method to account for its investment in Dynamic Motors, because the investment results in significant influence over the investment company.

    For Requirement 2:

    In the books of Excel Motors: we have that;

    Transaction / Event Date Accounts&Explanation Debit ($

    ) Credit ($

    )

    1. Jan 6, 2018 Investment in Associate 240,000,000

    Cash 240,000,000

    Accnt&Explan: To record cash paid for equity investment in Dynamic Motors.

    2. Cash ($ 15,000,000 x 45%) 6,750,000

    Investment in Associate 6,750,000

    Accnt&Explan:To record dividend received in cash from Dynamic Motors

    3. Investment in Associate ($ 10,000,000 x 45%) 4,500,000

    Investment Revenue 4,500,000

    Accnt&Explan:To record income earned on equity investment

    For Requirement 3:

    Equity Investment in Dynamic Motors:

    Cash 240,000,000 Cash 6,750,000

    Investment Income 4,500,000

    Ending Balance 237,750,000

    244,500,000 244,500,000

    The balance would be classified as a non-current asset on the balance sheet dated December 31, 2018

    cheers i hope you understand, this is actually in a tabular form.
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