Collis Company Purchased 36,000 Common Shares of Hoi Company as an Investment

question 73

Essay

Collis Company purchased 36,000 common shares of Hoi Company as an investment for $800,000 on
January 2, 2013.During 2013, Hoi Company reported net earnings of $625,000 and paid dividends of $90,000.
Required:
A) Assume that the 36,000 shares represent a 30% interest in Hoi Company.
i) Prepare all necessary journal entries to record the Collis investment in Hoi for 2013.
ii) What is the balance in the Investment in Hoi Company account on Collis' balance sheet as at December 31,
2013?

• A) Assume that the 36,000 shares represent a 30% interest in Hoi Company.
• i) Prepare all necessary journal entries to record the Collis investment in Hoi for 2013.
• ii) What is the balance in the Investment in Hoi Company account on Collis' balance sheet as at December 31,
• 2013?

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Definitions:

Variable Production Costs

Costs that fluctuate with the level of output production, such as raw materials and direct labor.

Variable Costing

An accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.

Fixed Manufacturing Overhead

The set costs associated with producing goods that do not change with the level of output, including salaries, rent, and insurance.

Net Operating Income

A financial metric that shows the profitability of a company's core business activities, excluding the effects of financing and investment income.