On May 15,Kingswood Company purchased 30% worth of Pineview Ltd's common shares as a significant influence investment.On September 30,Pineview announced that net income for the year amounted to $650,000.Kingswood should record a debit to Investment in Pineview Common Shares of $195,000 and a credit to Earnings from Investment in Pineview of $195,000.

Question

Quizplus · Accepted Answer

When a company purchases a significant influence investment, they account for it using the equity method. Under the equity method, the initial investment is recorded as a debit to Investment in Pineview Common Shares, and any income earned by Pineview is recorded as a credit to Earnings from Investment in Pineview. Since Kingswood purchased 30% of Pineview's common shares, they should record 30% of Pineview's net income for the year, which is $195,000.

On May 15,Kingswood Company Purchased 30% Worth of Pineview Ltd's