Concept explainers
Equity Investments, Equity Method, Fair Value Option, Net Assets Not Equal to Market Value. Jacob Corporation paid $536,200 for a 30% share of Gardner Enterprises on January 1 of the current year Gardner reported net assets at a book value of $1,414,000 on the date of acquisition. On the date of acquisition, it was determined that Gardner's plant assets were undorvaluod by $118,000 Gardner’s plant assets have a 10-year remaining life and are depreciated by the straight-line method with no residual value. Gardner reported net income of $224,000 and declared and paid cash dividends of $182,000 during the current year. Finally, Gardner s common shares are valued at $1,737,667 at the end of the current year
Required
- a. Compute the amount of
goodwill on the exchange, if any, assuming that the equity method is used to account for the investment. - b. Prepare all
journal entries indicated on the books of the Jacob Corporation under the fair value option and equity methods - c. Assume that Jacob Corporation sold the investment tor $540,000 on January 1 of the next year Prepare the journal entries required to record the sale of the investment under both the fair value option and the equity methods.
- d. Prepare a schedule that compares the amount and timing of revenue recognition for the fair value option and the equity methods.
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