Question

Montero Co. holds 100,000 common shares (40%) of ORD Corp. as a long-term investment. ORD Corp. paid a $100,000 dividend on November 1, 2017, and reported a net income of $700,000 for 2017. Prepare entry to record the receipt of the dividend and the December 31, 2017, year-end adjustment required for the investment account.

Answer 1

Answer:

Cash                         40,000

               ORD Corp              40,000

to record the cash payment of ORD Corp

ORD Corp                280,000

          Gain on Investment/ ORD Corp     280,000

to record the proportional net income of ORD Corp

Explanation:

100,000 x 40% = 40,000

700,000 x 40% = 280,000

The cash is treated as moving money from one place to another

It is moving from the company you have a degree of control, from your company. It increase your cash and decrease the Investment

The net incoem will be the gain in the investment, adn will impact the invstment asset and the gain on investment