Question

Exercise 12-23 (Algo) Equity method [LO12-6, 12-7]

On January 1, 2021, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $240 million cash, giving Cameron the ability to exercise significant influence over Lake’s operations. At the date of acquisition of the stock, Lake's net assets had a fair value of $600 million. Its book value was $500 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2021, was $230 million. During 2021, Lake declared and paid cash dividends of $40 million. The buildings have a remaining life of 10 years.

Required:
1. Complete the table below and prepare all appropriate journal entries related to the investment during 2021, assuming Cameron accounts for this investment by the equity method.
2. Determine the amounts to be reported by Cameron.

Answer 1

All amount mentioned in million

01.01.21
Investment in Lake Construction Co.shares	$240
cash		$240
(To record the investment in Lake Construction)
12.31.21
Investment in lake construction Co. shares (230*20%)	$46
Investment revenue		$46
(to record net income from investment)
12.31.21
cash ($40 * 20%)	$8
to investment in lake construction Co. shares		$8
(to record the issue of dividends)
12.31.21
Investment Revenue	$1
Investment in lake construction Co. shares		$1
(to record depreciation)

Calculation of depreciation

((20% *Fair value - 20% * book value)/2)10 year

=((20% * $600 * 20% * $500)/2 )10 year

= ($20/2)/10 year

= $10/10

=$1

Amount to be reported by cameron

Cash Invested $240

Share of Income $46

Cash Dividend ($8)

Depreciation ($1)

Total $277

Amount to be reported by cameron is $277

Note : In answer ask for the complete table but there is no table mentioned in question. Other two part perfectly answered above.