Assume that Oslo Corp. acquires 30% of Celdon Corp. for $360,000 on January 1, 2017. The journal entry on Oslo's books assuming Celdon's net income for 2017 was $600,000 would include a debit to
A) No entry is necessary.
B) Cash for $600,000.
C) Cash for $180,000.
D) Stock Investments for $180,000.

Question

Quizplus · Accepted Answer

When Oslo Corp. acquires 30% of Celdon Corp. for $360,000, it becomes a significant influence investor. Therefore, Oslo Corp. should use the equity method to account for its investment. Under the equity method, an investor records its share of the investee's net income as an increase in the Stock Investments account. Since Oslo owns 30% of Celdon, it should record 30% of Celdon's net income of $600,000, or $180,000, as an increase in Stock Investments. The entry on Oslo's books would be:
Debit Stock Investments  $180,000
Credit Equity in Celdon Corp's Net Income $180,000

Assume That Oslo Corp