This problem is a variation of P 12–10 focusing on the fair value option.]On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Companycommon stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the abilityto exercise significant influence over Lavery’s operations. Runyan chose the fair value option to account forthis investment. Runyan received dividends of $2.00 per share on December 15, 2018, and Lavery reported netincome of $160 million for the year ended December 31, 2018. The market value of Lavery’s common stock atDecember 31, 2018, was $31 per share. On the purchase date, the book value of Lavery’s net assets was $800million and:a. The fair value of Lavery’s depreciable assets, with an average remaining useful life of six years, exceededtheir book value by $80 million.b. The remainder of the excess of the cost of the investment over the book value of net assets purchased wasattributable to goodwill.Required:Assuming Runyan accounts for this investment under the fair value option, prepare all appropriate journal entriesin a manner similar to accounting for securities for which there is not significant influence.
This problem is a variation of P 12–10 focusing on the fair value option.]
On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company
common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability
to exercise significant influence over Lavery’s operations. Runyan chose the fair value option to account for
this investment. Runyan received dividends of $2.00 per share on December 15, 2018, and Lavery reported net
income of $160 million for the year ended December 31, 2018. The market value of Lavery’s common stock at
December 31, 2018, was $31 per share. On the purchase date, the book value of Lavery’s net assets was $800
million and:
a. The fair value of Lavery’s
their book value by $80 million.
b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was
attributable to
Required:
Assuming Runyan accounts for this investment under the fair value option, prepare all appropriate
in a manner similar to accounting for securities for which there is not significant influence.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
