MILESTONE II: Equity Investments, Equity Method, Fair Value Option, Net Assets Not Equal to Market Value. [Learning Objectives 4, 6] 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 undervalued 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. DELIVERABLES 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 for $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.

MILESTONE II: Equity Investments, Equity Method, Fair Value Option, Net Assets Not Equal to Market Value. [Learning Objectives 4, 6] 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 undervalued 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. DELIVERABLES 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 for $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.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter14: Intercorporate Investments In Common Stock

Section: Chapter Questions

Problem 18E

See similar textbooks

Similar questions

Learning Objective 6: Report stockholders’ equity) Lima Corp. has the followingstockholders’ equity information:Lima’s charter authorizes the company to issue 4,000 shares of 11% preferred stock withpar value of $200 and 700,000 shares of no-par common stock. The company issued 1,000shares of the preferred stock at $200 per share. It issued 350,000 shares of the common stockfor a total of $512,000. The company’s retained earnings balance at the beginning of 2018 was$75,000, and net income for the year was $100,000. During 2018, Lima declared the specifieddividend on preferred and a $0.10 per-share dividend on common. Preferred dividends for 2017were in arrears.Requirement1. Prepare the stockholders’ equity section of Lima Corp.’s balance sheet at December 31,2018. Show the computation of all amounts. Journal entries are not required.
(Learning Objective 2: Describe the effect of a stock issuance on paid-in capital)Saltwell Industries received $11,500,000 for the issuance of its stock on May 14. The par valueof the Saltwell stock was only $11,500. Was the excess amount of $11,488,500 a profit to Saltwell? If not, what was it?Suppose the par value of the Saltwell stock had been $2 per share, $4 per share, or $7 pershare. Would a change in the par value of the company’s stock affect Saltwell’s total paid-incapital? Give the reason for your answer.
Equity and Fair value for Equity Security Investments At the beginning of 2021, HomeComing bought 25% of Alumni's common stock at its book value. Total book value of all Alumni's common stock was $250,000 on this date. During 2021, Alumni reported $60,000 of net income and paid $15,000 of dividends. The fair value of Alumni at year end was $310,000 During 2022, Alumni reported a net loss of $15,000 and paid $10000 of dividends. The fair value of Alumni at year end was $290,000 Indicate the requested balances. Instructions: Fill in the dollar changes caused by the Investment assuming HomeComing Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Alumni Company.
(Learning Objective 6: Report stockholders’ equity) Doorman Corp. has thefollowing stockholders’ equity information:Doorman’s charter authorizes the company to issue 9,000 shares of 8% preferred stockwith par value of $120 and 700,000 shares of no-par common stock. The company issued 1,800shares of the preferred stock at $120 per share. It issued 140,000 shares of the common stockfor a total of $513,000. The company’s retained earnings balance at the beginning of 2018 was$77,000, and net income for the year was $94,000. During 2018, Doorman declared the specified dividend on preferred and a $0.20 per-share dividend on common. Preferred dividends for2017 were in arrears.Requirement1. Prepare the stockholders’ equity section of Doorman Corp.’s balance sheet at December 31,2018. Show the computation of all amounts. Journal entries are not required.
(Learning Objectives 2, 6: Account for stock issuance; report stockholders’equity) The partners who own Jefferson Rafts Co. wished to avoid the unlimited personalliability of the partnership form of business, so they incorporated as Jefferson Rafts, Inc. Thecharter from the state of Vermont authorizes the corporation to issue 200,000 shares of $15 parcommon stock. In its first month, Jefferson Rafts, Inc., completed the following transactions:Jan 6 Issued 900 shares of common stock to the promoter forassistance with issuance of the common stock. The promotionalfee was $27,000. Debit Organization Expense.9 Issued 4,000 shares of common stock to Lindsey Crow and 14,000shares to Jackie Jefferson in return for cash equal to the stock’s marketvalue of $20 per share. The two women were partners in Jefferson Rafts Co.26 Issued 1,600 shares of common stock for $25 cash per share.Requirements1. Record the transactions in the journal.2. Prepare the stockholders’ equity section of the Jefferson…
Z Corporation has the following transactions relating to its investment during 2020: Jan 5 Acquired 16,000 shares of Y company for P1,500,000 paying an additional P10,000 for brokerage and P5,000 for commission. Feb 14 Received dividends from Y company declared January 10,2020 to the stockholders of records January 31,2020, P16,000. Required:prepare all the necessary entries assuming the investment is 1. Financial asset at Fair Value through profit and loss 2. Financial asset at Fair Value through other comprehensive income
nEED IN 10 MINUTES 9. On January 1, 20x1, an entity purchased marketable equity securities for P2,500,000. The entity paid commission and taxes of P190,000. The equity securities do not qualify as financial asset held for trading. The entity made irrevocable election to present unrealized gain and loss in other comprehensive income. The securities have a market value of P2,600,000, and P2,750,000 on December 31, 20x1 and December 31, 20x2. On July 1, 2022, half of the securities are sold for P1,400,000. On July 1, 2022, the net increase/ decrease in retained earnings account is (sample answer: 10,500 increase or 10,500 decrease)
Oakbrook Travel, Inc. acquired an 80% interest in Island Cruises on December 31 for $485,000. Oakbrook has the ability to exercise significant influence on management decisions. The Island Cruises stock is publically traded. During the year, Island Cruises reported net income of $80,000 and paid cash dividends of $20,000.How should Oakbrook Travel account for its investment in Island Cruises? Select one: A. Apply the equity method and report the investment at market value at year end. B. Account for the investment as a special purpose entity. C. Apply the equity method and perform a full consolidation. D. Apply mark-to-market accounting and consolidate the statements at year end.
I need help with requirement 3, 4, 5 and 6 please (A, I, D and E). Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 50,000 Accounts receivable $ 40,000 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 120,000 Cash and short-term investments 60,000 Common stock 250,000 Equipment (net) (5-year remaining life) 200,000 Inventory 90,000 Land 80,000 Long-term liabilities (mature 12/31/23) 150,000 Retained earnings, 1/1/20 100,000 Supplies 10,000 Totals $ 600,000 $ 600,000 During 2020, Abernethy reported net income of $80,000 while declaring and paying dividends of $10,000. During 2021, Abernethy reported net income of $110,000 while declaring and paying dividends of $30,000. Assume that Chapman…
24 At the beginning of the year, Fairbridge, Inc. purchased an investment in Miller Milling Mills for $500,000, representing 10% of the book value of Miller. During the year, Miller reported net income of $800,000 and pays cash dividends of $92,000. At the end of the year, the fair value of Fairbridge’s investment is $525,000. Required At what amount is the investment reported on Fairbridge’s balance sheet at year-end? What amount of income from investments does Fairbridge report? Prepare journal entries to record the transactions for Fairbridge Company.
Scott Co. acquired a 30% interest in Roker, Inc. for $210,000 and appropriately applied the equity method. During the first year, Roker, Inc. reported net income of $125,000 and paid cash dividends totaling $25,000.What amount will Scott report as it relates to the investment at the end of the first year on its income statement? Select one: A. Investment earnings totaling $37,500 B. Investment earnings totaling $22,500 C. Receipt of dividends totaling $7,500 D. Net investment earnings totaling $75,000
Can experts help me do this question, thanks. Narcissus Ltd, acquired a 30 per cent interest in Daffodil Ltd for $175,000 in cash on 1 July2019. The directors of Narcissus Limited believe this investment represents significantinfluence over the investee. The equity of Daffodil Limited at the acquisition date was asfollows: Share capital - $145,000; Retained earnings - $280,000.In addition,• For the year ended 30 June 2020, Daffodil Ltd recorded an after-tax loss of$117,000.• For the year ended 30 June 2021, Daffodil Ltd recorded an after-tax profit of$120,000 and paid a dividend of $15,000.• Increase in asset revaluation reserves (revaluation of building of Daffodil Limited) -$100,000Required:(a) Record the relevant equity accounting adjustments in the books of Narcissus Ltd for theyear ending 30 June 2021 only. (b)Discuss the effect of equity accounting relative to cost accounting on Return on Asset forNarcissus Limited for the financial year ended June 2021.