Hello

In my assignment I have to prepare journal entry for my company who has purchased 50% of voting stock of another company.. will the entry be normal like

Dr Firm B's stock
Cr Cash
?

Also when the Firm B earns net income how does it reflect on my company's journal entries?

Thanks

Quote:

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Originally Posted by Deebanasir

Hello

in my assignment i have to prepare journal entry for my company who has purchased 50% of voting stock of another company..will the entry be normal like

Dr Firm B's stock
Cr Cash
??

Also when the Firm B earns net income how does it reflect on my company's journal entries?

thanks

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Company B will be treated as an associate company and not a subsidiary. You must also know how the payment was made - in cash or by issue of shares or both? Again, what is the fair value of the acquisition? Such transactions are recorded on the basis of fair value received or fair value given, whichever is easily determinable. This is called as equity method of accounting.

When Company B declares profit an entry to recognize 50% share is:
Debit Investment in B
Credit Retained earnings

When Company B declares or pays dividend, the purchasing company will record the dividend receivable or received as a reduction in the cost of investment.