Kent Company purchased 35 percent ownership of Lomm Company on January 1, 20X8, for $140,000. Lomm reported 20X8 net income of $80,000 and paid dividends of $20,000. At December 31, 20X8, Kent determined the fair value of its investment in Lomm to be $174,000.

 Kent Company purchased 35 percent ownership of Lomm Company on January 1, 20X8, for $140,000. Lomm reported 20X8 net income of $80,000 and paid dividends of $20,000. At December 31, 20X8, Kent determined the fair value of its investment in Lomm to be $174,000.

Required:
Give all journal entries recorded by Kent with respect to its investment in Lomm in 20X8 assuming it uses the equity method.

Give all journal entries recorded by Kent with respect to its investment in Lomm in 20X8 assuming it carries the securities at fair value method.

 

Explanation
Record dividends from Lomm Company: $20,000 × 0.35 = $7,000

Record equity-method income: $80,000 × 0.35 = $28,000

Record dividends from Lomm Company: $20,000 × 0.35 = $7,000

Record increase in value of Lomm stock: $174,000 − $140,000 = $34,000

Thanks