APB Opinion No. 18

Assume that on January 1, 19X1, the Panas Corporation (investor) purchases a 10% interest in the Zen Corporation (investee) stock for $50,000.  Zen reports income and pays dividends as follows:

Year Income Dividends
19X1 $40,000 $30,000
19X2 $20,000 $15,000
19X3 $10,000 $40,000
Panas Corporation appropriately uses the cost method of accounting for its investment in Zen.

1.  Entry to acquire the investment:

     Investment in Zen Corporation Stock $50,000
                     Cash $50,000
2. Entry to record year X1 dividend:
Cash $3,000
       Dividend Income $3,000

3. Entry to record year X2 dividend:

Cash $1,500
       Dividend Income $1,500


4. Entry to record year X4 dividend:

Cash $4,000
      Dividend Income $2,500
      Investment in Zen Company Stock $1,500

This summary does not substitute for reading the original pronouncement!!

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