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Investment securities and equity method investments compared
• LO12-6, LO12-7
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 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
b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to
Required:
1. Prepare all appropriate
2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest.
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Chapter 12 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
- Balance Sheet Presentation of Available-for-Sale Investments During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows: Security Shares Purchased Cost Hawking Inc. 860 $43,602 Pavlov Co. 2,330 61,512 Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $60 per share and the Pavlov Co. stock had a market value of $48 per share. Galileo Company had net income of $337,400 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets. a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments. Galileo Company Balance Sheet (selected items) December 31, Year 1 Assets Current Assets: $fill in the blank 6f30cb02405dfbc_2 Plus Unrealized Gain (Loss) on Available-for-Sale Investments fill in the blank 6f30cb02405dfbc_4 $fill…arrow_forwardBalance Sheet Presentation of Available-for-Sale Investments During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows: Security Shares Purchased Cost Hawking Inc. 860 $43,602 Pavlov Co. 2,330 61,512 Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $60 per share and the Pavlov Co. stock had a market value of $48 per share. Galileo Company had net income of $337,400 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets. available for sale investments at cost/available for sale investments at fair value/common stock/retained earning/unrealized gain (loss) on available for sale investments/less retained earning/less unrealized gain (loss) on available for sale /plus retained earnings/plus unrealized gain (loss) on available/plus valuation allowance for available for sale/less unrealized gain…arrow_forwardJournalizing equity investment transactions; fair value method Seamus Industries Inc. buys and sells investments as part of its ongoing cash management. The following investment transactions were completed during the year: Feb. 24. Purchased 1,000 shares of Tett Co.'s common stock for $85 per share. May 16. Purchased 2,500 shares of Isaacson Co.'s common stock for $35. July 14. Sold 400 shares of Tett Co. stock for $102 per share. Aug. 12. Sold 750 shares of Isaacson Co. stock for $32 per share. Oct. 31. Received dividends of $0.40 per share on Tett Co. stock. Dec. 31. At the end of the accounting period, the fair value of the remaining 600 shares of Tett Co.'s stock was $110 per share. The fair value of the remaining 1,750 shares of Isaacson Co.'s stock was $30 per share. Journalize the entries for these transactions. If an amount box does not require an entry, leave it blank. Feb. 24 May 16 July 14 Aug. 12 Oct. 31 Dec. 31arrow_forward
- Chapter 15 McDaniel Corporation manufactures surveying equipment. Journalize the entries to record the following selected equity investment transactions completed by McDaniel during 2019: February 26 Purchased for cash 1,350 shares of Demon Inc. stock for $70 per share plus a $75 brokerage commission. April 16 Received dividends of $0.75 per share on Demon Inc. stock. June 18 Purchased 600 shares of Demon Inc. stock for $68 per share plus a $50 brokerage fee. August 19 Sold 1,500 shares of Demon Inc. stock for $72 per share less a $100 brokerage commission. McDaniel assumes that the first investments purchased are the first investments sold. November 14 Received dividends of $0.44 per share on Demon Inc. stock.arrow_forwardFair Value Journal Entries, Available-for-Sale Investments The investments of Steelers Inc. include a single investment: 8,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $10 per share. CashCash DividendsInterest ReceivableInvestments-Bengals Inc. StockRetained EarningsUnrealized Gain (Loss) on Available-for-Sale InvestmentsValuation Allowance for Available-for-Sale Investme a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1. Year 1 Sept. 12 fill in the blank fb2219094fa204f_2fill in the blank fb2219094fa204f_4Year 1 Dec. 31 fill in the blank fb2219094fa204f_6fill in the blank fb2219094fa204f_8b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial…arrow_forwardEquity Investments Fair Value Method The following information is available for the Rosen Company as of December 31, year 1 regarding its investments. 4,200 shares of Grimes Company common stock 3,750 shares of Oliver Company common stock Total of portfolio Previous fair value adjustment balance Cost $43,900 23,750 $67,650 Requirements 1. Make an adjusting entry needed for December 31, year 1. Fair Value $44,275 21,995 66,270 1,650 2. During year 2, Rosen sold its investment in Oliver Company for $22,500. Make a journal entry to record the sale. 3. At the end of year 2, the Grimes Company shares had a fair value of $45,250. Make the adjusting entry needed for December 31, year 2.arrow_forward
- 1. Nicole Company acquires 75% of Carl John Company (CJC) for P6,000,000. The carrying and fair values of CJC's net assets at the time of acquisition are P4,500,000 and P4,900,000, respectively. Required: a. Determine the goodwill or gain on bargain purchase assuming the consideration paid includes control premium of P852,000. b. Determine the goodwill or gain on bargain purchase assuming the consideration paid excludes control premium of P138,000 and the fair value of the non-con- trolling interest is P736,500. 3. Father Corporation (FC) acquires 20% ownership interest in Son Corporation (SC) on January 1, 202X, for P1,750,000 cash, which is the fair value of the investment at that date. FC has concluded that it does not have a significant influence over SC. At the same date, the fair and carrying values of SC's identifiable assets is P5,000,000 and P3,000,000. The identifiable assets include land, which has fair and carrying values of P4,000,000 and P3,000,000, respectively. For the…arrow_forwardFair value journal entries, trading investmentsThe investments of Charger Inc. include a single investment: 14,500shares of Raiders Inc. common stock purchased on February 24, Year 1,for $38 per share including brokerage commission. These shares werelassified as trading securities. As of the December 31, Year 1, balancesheet date, the share price had increased to $42 per share. a. Journalize the entries to acquire the investment on February 24 andrecord the adjustment to fair value on December 31, Year 1.b. How is the unrealized gain or loss for trading investments reported onthe financial statements?arrow_forwardQuestion 5 On January 2, 2020, Theodora Company purchased 40,000 shares of Byzantine, Inc. stock at P100 per share. Brokerage fees amounted to P120,000. A P5 dividend per share of Byzantine, Inc. shares had been declared on December 15, 2019, to be paid on March 31, 2020 to shareholders of record on January 31, 2020. The shares are designated as FVTOCI. On December 31, 2020 the investment has a fair value of P4,200,000. How much should be recognized in the 2020 other comprehensive income related to these securities? Group of answer choices P400,000 P200,000 P80,000 P280,000arrow_forward
- Journal entries for trading investments Gruden Bancorp Inc. purchased a portfolio of trading securities during 20Y3, its first year of operations. The cost and fair value of this portfolio on December 31, 20Y3, are as follows: Issuing Company Cost Fair Value Griffin Inc. $40,000 $44,800 Luck Company 37,500 33,750 Wilson Company 40,000 37,000 Total $117,500 $115,550 On May 10, 20Y4, Gruden Bancorp Inc. purchased trading securities of Carroll Inc. for $34,900. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank. a. The adjusting entry for the portfolio of trading securities on December 31, 20Y3. 20Y3, Dec. 31 fill in the blank 0de958062fa6ff5_2 fill in the blank 0de958062fa6ff5_3 fill in the blank 0de958062fa6ff5_5 fill in the blank 0de958062fa6ff5_6 b. The May 10, 20Y4, purchase of Carroll Inc. securities. 20Y4, May 10 fill in the blank…arrow_forwardJournal entries for trading investments Gruden Bancorp Inc. purchased a portfolio of trading securities during 20Y3, its first year of operations. The cost and fair value of this portfolio on December 31, 20Y3, are as follows: Issuing Company Cost Fair Value Griffin Inc. $14,070 $13,230 Luck Company 22,960 21,350 Wilson Company 9,300 9,490 Total $46,330 $44,070 On May 10, 20Y4, Gruden Bancorp Inc. purchased trading securities of Carroll Inc. for $15,610. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank. a. The adjusting entry for the portfolio of trading securities on December 31, 20Y3. 20Y3, Dec. 31 b. The May 10, 20Y4, purchase of Carroll Inc. securities. 20Y4, May 10 c. The adjusting entry for the portfolio of trading securities on December 31, 20Y4. Assume that except for the purchase of Carroll Inc. securities there were no other transactions involving trading securities in 20Y4. In addition, assume that the fair value of…arrow_forwardAll securities purchases made by Mechanical Engineers, Inc. described in this problem represent less than a 20% interest in the investee companies. Part I: Mechanical Engineers, Inc. made the following purchases of equity securities during 20X7, the first year any investments were made: Investee Company Cost per per share during 20X7* Number of shares purchased Total Cost Market value per share on Dec. 31, 20X7 Total Market Value on Dec. 31, 20X7 W Co.** $11.00 500 $5,500 $14.00 $7,000 X Co.*** $18.00 1,000 $18,000 $17.00 $17,000 $23,500 $24,000 * Costs per share include broker’s fees and commissions.** Received $50 dividend during 20X7 from W Co.*** Received $200 dividend during 20X7 from X Co. Mechanical Engineers, Inc. intends to sell the W Co. and X Co. investments in the short term in an open market. Mechanical Engineers, Inc. adjusts its allowance account for securities valuation annually at the…arrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
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