Chapter 1, Problem 1DYS

On January 1, 2020, Planet Company purchased an equipment with a cash price of P2,000,000. The supplier can choose how the purchase is to be settled. The choices are 20,000 shares with par value of P50 in one year's time, or a cash payment equal to the market value of 15,000 phantom shares on December 31, 2020. At grant date on January 1, 2020, the market price of each share is P80 and on the date of settlement on December 31, 2020, the market price of each share is P100. What amount of interest expense should be recognized on December 31, 2020 if the supplier has chosen the cash alternative?

Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $365,000. Amortization associated with this acquisition is $12,600 per year. In 2021, Lindman earns an income of $132,000 and declares cash dividends of $33,000. Previously, in 2020, Lindman had sold inventory costing $33,600 to Matthew for $56,000. Matthew consumed all but 20 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $44,800 to Matthew for $80,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022. What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman? What is the equity method balance in the Investment in Lindman account at the end of 2021?

On January 1, 2020, Grand Haven, Inc., reports net assets of $843,200 although equipment (with a four-year remaining life) having a book value of $463,000 is worth $525,000 and an unrecorded patent is valued at $46,800. Van Buren Corporation pays $761,600 on that date to acquire an 80 percent equity ownership in Grand Haven. If the patent has a remaining life of nine years, at what amount should the patent be reported on Van Buren's consolidated balance sheet at December 31, 2021?   Multiple Choice   $36,400.   $29,120.   $41,600.   $32,760.

Suppose that AXE company acquires exactly 25% of the voting common stock of Company SARDAR Inc. for $3,000,000 at the beginning of the year 2020. Pfizer company reports $1,200,000 earnings for the year in its net income and pays $550,000 in cash dividends at the end of the year 2020. 1. Using the cost method, what is the investment income and the balance sheet investment account balance respectively for AXE company? * A) $137,500, $3,000,000 B) $300,000; $3,162,500 C) $137,500; $2,300,000 D) None of the above. 2. Using the equity method, what is the investment income and the balance sheet investment account balance respectively for AXE company? * A) $137,500, $3,000,000 B) $300,000; $3,162,500 C) $137,500; $2,300,000 D) None of the above.

On January 4, 2024, Runyan Bakery paid $346 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 $2.80 per share on December 15, 2024, and Lavery reported net income of $260 million for the year ended December 31, 2024. The market value of Lavery's common stock at December 31, 2024, was $32 per share. On the purchase date, the book value of Lavery’s identifiable net assets was $910 million and: The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $60 million. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: Assuming Runyan accounts for this investment…

EFG Holdings Corporation will be acquiring 100% ownership of HIJ Corporation. The latter currently has an equity value of P3,600,000, a Jrequired rate of return of 16%, excess earnings of 2%, and a remaining business life of 5 years. If EFG Holding Corporation acquires HIJ, this life will be extended by 15 years but its operating risk will also increase. The required rate of return on HIJ would become 20%. If the agreed price is P4,000,000, how much would the value of control over HIJ which EFG Corporation would still avoid be?

On January 1, 202X, Anna Corporation (AC) acquires 60% of the equity capital of Papa Corporation. On this date, the identifiable assets and liabilities of Papa Corporation are valued at P350 million. The maintainable profits of Papa Corporation are estimated at P50 million per year. Based on a price-earnings ratio of 11 times, the fair value of the ordinary shares of Papa Corporation is estimated at P550 million.   The purchase consideration consists of the following: An initial payment of P100 million on January 1, An amount of P180 million payable before January 1, 202Y, which is contingent on the achievement of the maintainable profit in the first year; and An amount of P321 million payable on January 1, 202Z, which is contingent on the achievement of the maintainable profit in the second year. Anna Corporation’s maintainable profits have been averaging about P60 million per year in the past 10 years. This level would probably be maintained in the foreseeable future. At the…

On January 1, 202X, Anna Corporation (AC) acquires 60% of the equity capital of Papa Corporation. On this date, the identifiable assets and liabilities of Papa Corporation are valued at P350 million. The maintainable profits of Papa Corporation are estimated at P50 million per year. Based on a price-earnings ratio of 11 times, the fair value of the ordinary shares of Papa Corporation is estimated at P550 million.The purchase consideration consists of the following:• An initial payment of P100 million on January 1, 202X.• An amount of P180 million payable before January 1, 202Y, which is contingent on the achievement of the maintainable profit in the first year; and• An amount of P321 million payable on January 1, 202Z, which is contingent on the achievement of the maintainable profit in the second year.Anna Corporation’s maintainable profits have been averaging about P60 million per year in the past 10years. This level would probably be maintained in the foreseeable future. At the…

As a long-term investment at the beginning of the 2024 fiscal year, Florists International purchased 25% of Nursery Supplies Incorporated's 16 million shares for $59 million. The fair value and book value of the shares were the same at that time. During the year, Nursery Supplies earned net income of $36 million and distributed cash dividends of $2.25 per share. At the end of the year, the fair value of the shares is $55 million. Required: Prepare the appropriate journal entries from the purchase through the end of the year.