Question

Simmons Corporation owns stock of Armstrong, Inc. Prior to 2017, the investment was accounted for using the equity method. In early 2017, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2017, Armstrong earned net income of \(80,000 and paid dividends of \)95,000. Prepare Simmons’s entries related to Armstrong’s net income and dividends, assuming Simmons now owns 10% of Armstrong’s stock.

Short answer

Cash is debited by $9,500, available for sale securities credited by $1,500, and dividend revenue credited by $8,000. The dividend revenue is $8,000.

Step-by-step solution

Calculation of dividend revenue

Dividend Revenue = Net Income x Percentage Owned

= 80,000 x 10%

= $8,000

Journal Entry

Date	Particulars	Debit ($)	Credit ($)
	Cash	$9,500
	Available-for-sale Securities		$1,500
	Dividend revenue		$8,000
	(Being Dividend revenue is recorded)