On January 3, 2020, Novak Limited purchased 3,500 (35%) of the common shares of Sonja Corp. for $468,900. The following information is provided about the identifiable assets and liabilities of Sonja at the date of acquisition:

Carrying Amount Fair Value

Assets not subject to depreciation
$516,000 $516,000

Assets subject to depreciation (10 years remaining)
806,000 866,000

Total identifiable assets
1,322,000 1,382,000

Liabilities
108,000 108,000

During 2020, Sonja reported the following information on its statement of comprehensive income:

Income before discontinued operations $208,000

Discontinued operations (net of tax) (71,900)

Net income and comprehensive income 136,100

Dividends declared and paid by Sonja November 15, 2020 124,000

Assume that the 35% interest is enough to make Sonja an associate of Novak, and that Novak is required to apply IFRS for its financial reporting. The fair value of Sonja’s shares at December 31, 2020, is $151 per share.

Prepare the journal entry to record Novak’s purchase of the Sonja shares on January 3, 2020. (Hint: Any unexplained payment represents unrecognized goodwill of Sonja.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Jan. 3, 2020

enter an account title for the journal entry on January 3

enter a debit amount

enter a credit amount

enter an account title for the journal entry on January 3

enter a debit amount

enter a credit amount

Prepare all necessary journal entries associated with Novak’s investment in Sonja for 2020. Depreciable assets are depreciated on a straight-line basis. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

enter an account title to record dividends collected

enter a debit amount

enter a credit amount

enter an account title to record dividends collected

enter a debit amount

enter a credit amount

(To record dividends collected)

enter an account title to record investment income or loss

enter a debit amount

enter a credit amount

enter an account title to record investment income or loss

enter a debit amount

enter a credit amount

enter an account title to record investment income or loss

enter a debit amount

enter a credit amount

(To record investment income or loss)

enter an account title to record amortization of fair value difference

enter a debit amount

enter a credit amount

enter an account title to record amortization of fair value difference

enter a debit amount

enter a credit amount

(To record amortization of fair value difference)

Prepare the journal entry if you were informed that Novak’s long-term business prospects had deteriorated and that the most Novak could expect to recover in the future or to sell its investment in Sonja for at December 31, 2020, is $120 per share. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2020

enter an account title for the journal entry on December 31

enter a debit amount

enter a credit amount

enter an account title for the journal entry on December 31

enter a debit amount

enter a credit amount

Question

On January 3, 2020, Novak Limited purchased 3,500 (35%) of the common shares of Sonja Corp. for $468,900. The following information is provided about the identifiable assets and liabilities of Sonja at the date of acquisition:

	Carrying Amount	Fair Value
Assets not subject to depreciation	$516,000	$516,000
Assets subject to depreciation (10 years remaining)	806,000	866,000
Total identifiable assets	1,322,000	1,382,000
Liabilities	108,000	108,000

During 2020, Sonja reported the following information on its statement of comprehensive income:

Income before discontinued operations		$208,000
Discontinued operations (net of tax)		(71,900)
Net income and comprehensive income		136,100
Dividends declared and paid by Sonja November 15, 2020		124,000

Assume that the 35% interest is enough to make Sonja an associate of Novak, and that Novak is required to apply IFRS for its financial reporting. The fair value of Sonja’s shares at December 31, 2020, is $151 per share.

Prepare the journal entry to record Novak’s purchase of the Sonja shares on January 3, 2020. (Hint: Any unexplained payment represents unrecognized goodwill of Sonja.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 3, 2020	enter an account title for the journal entry on January 3	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on January 3	enter a debit amount	enter a credit amount

Prepare all necessary journal entries associated with Novak’s investment in Sonja for 2020. Depreciable assets are depreciated on a straight-line basis. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title to record dividends collected	enter a debit amount	enter a credit amount
enter an account title to record dividends collected	enter a debit amount	enter a credit amount
(To record dividends collected)
enter an account title to record investment income or loss	enter a debit amount	enter a credit amount
enter an account title to record investment income or loss	enter a debit amount	enter a credit amount
enter an account title to record investment income or loss	enter a debit amount	enter a credit amount
(To record investment income or loss)
enter an account title to record amortization of fair value difference	enter a debit amount	enter a credit amount
enter an account title to record amortization of fair value difference	enter a debit amount	enter a credit amount
(To record amortization of fair value difference)

Prepare the journal entry if you were informed that Novak’s long-term business prospects had deteriorated and that the most Novak could expect to recover in the future or to sell its investment in Sonja for at December 31, 2020, is $120 per share. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount

Accepted Answer

Step 1
On initial recognition:

The investment in an associate or joint venture is recognized at…