Question
In: Accounting
On January 1, 2018, Cameron Inc. bought 10% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 10% of the outstanding
common stock of Lake Construction Company for $170 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $700 million. Their book value was $600 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,
2018, was $170 million. During 2018, Lake declared and paid cash
dividends of $20 million. The buildings have a remaining life of 5
years.
Required:
1. Complete the table below and prepare all
appropriate journal entries related to the investment during 2018,
assuming Cameron accounts for this investment by the equity
method.
2. Determine the amounts to be reported by
Cameron.Determine the amounts to be reported by Cameron. (Amounts
to be deducted should be indicated with a minus sign. Enter your
answers in millions, (i.e., 10,000,000 should be entered as
10).)
|
|||||||||
Solutions
Expert Solution
1)
| Journal Entries showing Investment | ||
| Particulars | Debit (In Million$) | Credit (In Million$) |
| Investment in Lake construction (common stock) | $170 | |
| cash | $170 | |
| (Investment in common stock for cash ) | ||
| Investment in Lake construction (common stock) | $17 | |
| Investment Revenue | $17 | |
| (10% on revenue income 170$) | ||
| cash | $2 | |
| Investment in Lake construction (common stock) | $2 | |
| (10% on dividends payout in cash . 10% of 20 M$) | ||
| Investment Revenue | $1 | |
| Investment in Lake construction (common stock) | $1 | |
| (Adjustment of depreciation ) | ||
| Fair value =700M$ | ||
| Book value = 600M$ | ||
| Difference = 100M$ | ||
| one half of the difference =100/2=$50M | ||
| Remaining Life of Building =5 years | ||
| Value = 50M$/5years = 10 M $ . 10% of 10M$ = 1M$ |
2. Amounts to be reported by cameron
a) Investment in cameron's Balancesheet
Cost + Share of net income - Share of net loss - Dividend received - Adjustments in depreciation = Carrying value of investment
= $170M + 17-2-1
= $184 M
b) Investment revenue in the income statement
Investment revenue - adjustments in depreciation
$17M-$1M= $16M
$16M
c) Investing activities in the statement of cash flow
Investment- dividents payouts received
170M$ - 2M$
=168M$
ekkarill92 answered 2 years agoRelated Solutions
On January 1, 2018, Cameron Inc. bought 30% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 30% of the outstanding
common stock of Lake Construction Company for $600 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $800 million. Their book value was $700 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,
2018, was...
On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 20% of the outstanding
common stock of Lake Construction Company for $360 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $800 million. Their book value was $700 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,
2018, was...
On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 20% of the outstanding
common stock of Lake Construction Company for $340 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $900 million. Their book value was $850 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,
2018, was...
On January 1, 2018, Cameron Inc. bought 30% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 30% of the outstanding
common stock of Lake Construction Company for $420 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $800 million. Their book value was $700 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,
2018, was...
On January 1, 2016, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...
On January 1, 2016, Cameron Inc. bought 20% of the outstanding
common stock of Lake Construction Company for $300 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $900 million. Their book value was $800 million. The
difference was attributable to the fair value of Lake’s buildings
exceeding book value. Lake's net income for the year ended December
31, 2016, was $150 million. During 2016, Lake declared and paid
cash dividends...
On July 1, 2018, Gupta Corporation bought 20% of the outstanding common stock of VB Company...
On July 1, 2018, Gupta Corporation bought 20% of the outstanding
common stock of VB Company for $110 million cash. At the date of
acquisition of the stock, VB’s net assets had a total fair value of
$500 million and a book value of $290 million. Of the $210 million
difference, $46 million was attributable to the appreciated value
of inventory that was sold during the last half of 2018, $130
million was attributable to buildings that had a remaining...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding common stock of VB Company...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding
common stock of VB Company for $170 million cash. At the date of
acquisition of the stock, VB’s net assets had a total fair value of
$490 million and a book value of $220 million. Of the $270 million
difference, $50 million was attributable to the appreciated value
of inventory that was sold during the last half of 2018, $160
million was attributable to buildings that had a remaining...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding common stock of VB Company...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding
common stock of VB Company for $170 million cash. At the date of
acquisition of the stock, VB’s net assets had a total fair value of
$490 million and a book value of $220 million. Of the $270 million
difference, $50 million was attributable to the appreciated value
of inventory that was sold during the last half of 2018, $160
million was attributable to buildings that had a remaining...
On January 1, 2018, Deuce Inc. acquired 15% of Wiz Co.’s outstanding common stock for $62,400...
On January 1, 2018, Deuce Inc. acquired 15% of Wiz Co.’s
outstanding common stock for $62,400 and did not exercise
significant influence. Wiz earned net income of $96,000 in 2018 and
paid dividends of $36,000. The fair value of Deuce’s investment was
$80,000 at December 31, 2018. On January 3, 2019, Deuce bought an
additional 10% of Wiz for $54,000. This second purchase gave Deuce
the ability to significantly influence the decision making of Wiz.
During 2019, Wiz earned $120,000...
On January 1, 2018, Coronado Corp. had 491,000 shares of common stock outstanding. During 2018, it...
On January 1, 2018, Coronado Corp. had 491,000 shares of common
stock outstanding. During 2018, it had the following transactions
that affected the Common Stock account.
February 1 Issued 114,000 shares
March 1 Issued a 10% stock dividend
May 1 Acquired 103,000 shares of treasury stock
June 1 Issued a 3-for-1 stock split
October 1 Reissued 60,000 shares of treasury stock
Determine the weighted-average number of shares outstanding as
of December 31, 2018.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 4. Why did the United States and the Soviet Union find themselves in a “Cold War”...
- The Facts: Ann and Bill decided to start a coffee shop. They agreed Bill would provide...
- MARGI sells different types of wine. Customers place orders to the most popular “Summer Wine” at...
- A firm's bonds have a maturity of 8 years with a $1,000 face value, have an...
- Naive reasoning suggests that a string theory vacuum with cosmological constant Lambda1 is always unstable as...
- I. Design and code a class Rectangle that has the following properties: Two private members double...
- A bond has a $1,000 par value, 10 years to maturity, and an 8% annual coupon...
ADVERTISEMENT