On July 1, 2020, Allen Corporation purchased 30% of the 84,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. Towne Corporation paid cash dividends of $22,400 on December 30, 2020, to shareholders on record. During the year, Towne Corporation reported net income of $67,200. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. a. Record Allen’s entries in 2020 assuming that Allen Corporation had significant influence over Towne Corporation.

On July 1, 2020, Allen Corporation purchased 30% of the 84,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. Towne Corporation paid cash dividends of $22,400 on December 30, 2020, to shareholders on record. During the year, Towne Corporation reported net income of $67,200. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. a. Record Allen’s entries in 2020 assuming that Allen Corporation had significant influence over Towne Corporation.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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