Company A paid $85 million on January 2 of the current year for 4 million shares of Company B's common stock. The Investment represents a 30% Interest in the net assets of Company B and gave Company A the ability to exercise significant influence over Company B's operations. Company A received dividends of $2 per share on December 21 of the current year, and Company B reported net income of $50 million for the year ended December 31 of the current year. The fair value of Company B's common stock at December 31 of the current year was $26.50 per share. The book value of Company B's net assets was $200 million. ⚫ The fair value of Company B's depreciable assets exceeded their book value by $40 million. These assets had an average remaining useful life of twelve years. ⚫ The remainder of the excess of the cost of the Investment over the book value of net assets purchased was attributable to goodwill. Required: Complete the table below and prepare the appropriate journal entries related to the Investment during the current year..
Company A paid $85 million on January 2 of the current year for 4 million shares of Company B's common stock. The Investment represents a 30% Interest in the net assets of Company B and gave Company A the ability to exercise significant influence over Company B's operations. Company A received dividends of $2 per share on December 21 of the current year, and Company B reported net income of $50 million for the year ended December 31 of the current year. The fair value of Company B's common stock at December 31 of the current year was $26.50 per share. The book value of Company B's net assets was $200 million. ⚫ The fair value of Company B's depreciable assets exceeded their book value by $40 million. These assets had an average remaining useful life of twelve years. ⚫ The remainder of the excess of the cost of the Investment over the book value of net assets purchased was attributable to goodwill. Required: Complete the table below and prepare the appropriate journal entries related to the Investment during the current year..
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
Related questions
Question
Transcribed Image Text:Company A paid $85 million on January 2 of the current year for 4 million shares of Company B's common stock. The Investment
represents a 30% Interest in the net assets of Company B and gave Company A the ability to exercise significant influence over
Company B's operations. Company A received dividends of $2 per share on December 21 of the current year, and Company B
reported net income of $50 million for the year ended December 31 of the current year. The fair value of Company B's common stock
at December 31 of the current year was $26.50 per share.
The book value of Company B's net assets was $200 million.
• The fair value of Company B's depreciable assets exceeded their book value by $40 million. These assets had an average
remaining useful life of twelve years.
• The remainder of the excess of the cost of the Investment over the book value of net assets purchased was attributable to
goodwill.
Required:
Complete the table below and prepare the appropriate journal entries related to the Investment during the current year..
Complete this question by entering your answers in the tabs below.
Calculation
General
Journal
Prepare the appropriate journal entries related to the investment during the current year.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your
answers in millions, (i.e., 10,000,000 should be entered as 10).
No
Transaction
General Journal
1
1
Investment in equity affiliate
Cash
2
2
Gain on investment (NI)
Investment in equity affiliate
3
3
Cash
Investment in equity affiliate
4
4
Retained earnings
Investment in equity affiliate
5
5
No journal entry required
< Calculation
General Journal >
Debit
Credit
85
85
15
15
8
1✔
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