On August 1, 2020, Whispering Corporation purchased 20% of the outstanding voting shares in WLT Corporation for $1,300,000. At the time of purchase, WLT’s net assets were undervalued by $73,500 and had a remaining useful life of 12 years. Both companies had a December 31 year-end. At the end of 2020, WLT reported a net income of $320,000. Also, on December 31, 2020, the fair value of the investment in WLT shares was $1,425,000. On January 10, 2021, WLT paid a cash dividend. Whispering’s ownership entitles it to $18,100 of the dividend. Prepare the journal entries on the books of Whispering Corporation to record the transactions described above, assuming that the 20% interest in WLT does not represent significant influence, and that Whispering elected to account for its investment following the fair value through net income (FV-NI) model.
On August 1, 2020, Whispering Corporation purchased 20% of the outstanding voting shares in WLT Corporation for $1,300,000. At the time of purchase, WLT’s net assets were undervalued by $73,500 and had a remaining useful life of 12 years. Both companies had a December 31 year-end. At the end of 2020, WLT reported a net income of $320,000. Also, on December 31, 2020, the fair value of the investment in WLT shares was $1,425,000. On January 10, 2021, WLT paid a cash dividend. Whispering’s ownership entitles it to $18,100 of the dividend.
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