On January 4, 2021, Runyan Bakery paid $334 million for 10 million shares of Lavery Labeling...

On January 4, 2021, Runyan Bakery paid $334 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 $4.00 per share on December 15, 2021, and Lavery reported net income of $200 million for the year ended December 31, 2021. The market value of Lavery's common stock at December 31, 2021, was $31 per share. On the purchase date, the book value of Lavery's identifiable net assets was $850 million and:

The fair value of Lavery's depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 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:
1. Prepare all appropriate journal entries related to the investment during 2021, assuming Runyan accounts for this investment by the equity method.

- Record the purchase of Lavery Labeling stock for $334 million.

-Record Runyan Bakery's share of Lavery's $200 million net income.

-Record the receipt of cash dividends of $4 per share on 10 million shares.

-Record any necessary entry related to depreciation. The fair value of Lavery's depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 million.

- Record any necessary adjusting entry to correctly report the investment on the balance sheet. The market value of Lavery's common stock at December 31, 2021 was $31 per share.

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.

- Record the purchase of Lavery Labeling stock for $334 million.

- Record Runyan Bakery's share of Lavery's $200 million net income.

-Record the receipt of cash dividends of $4 per share on 10 million shares.

-Record any necessary adjusting entry to correctly report the investment on the balance sheet. The market value of Lavery's common stock at December 31, 2021 was $31 per share.

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Expert Solution

ekkarill92 answered 1 year ago

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