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10 April, 11:14

Windsor Locomotive Corporation purchased for $550,000 a 40% interest in Lopez Railways, Inc. This investment enables Windsor Locomotive to exert significant influence over Lopez Railways. During the year, Lopez Railways earned net income of $149,000 and paid dividends of $27,000. Prepare Windsor Locomotive's journal entries related to this investment.

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  1. 10 April, 14:17
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    Journal Entries

    Dr. Investment in Lopez Railways Inc. $600,000

    Cr. Cash $600,000

    Dr. Investment in Lopez Railways Inc $59,600

    Cr. Income of Investment in Lopez Railways Inc $59,600

    Dr. Cash $10,800

    Cr. Investment in Lopez Railways Inc $10,800

    Explanation:

    As Windsor Locomotive Corporation has purchased 40% interest in Lopez Railway Inc. Lopez Inc. is classified as the associate company of Windsor Corp.

    Share in net Income = $149,000 x 40% = $59,600

    Share In Dividend = $27,000 x 40% = $10,800
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