Question
In: Accounting
Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in...
Northwest Paperboard Company, a paper and allied products
manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2021, for $580
million.
At the date of purchase, the book value of Vancouver's net assets
was $865 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
facilities. The fair value exceeded book value by $5 million for
the inventory and by $30 million for the plant facilities.
The estimated useful life of the plant facilities is 15 years. All
inventory acquired was sold during 2021.
Vancouver reported net income of $200 million for the year ended
December 31, 2021. Vancouver paid a cash dividend of $40
million.
Required:
1. Prepare all appropriate journal entries related
to the investment during 2021.
2. What amount should Northwest report as its
income from its investment in Vancouver for the year ended December
31, 2021?
3. What amount should Northwest report in its
balance sheet as its investment in Vancouver?
4. What should Northwest report in its statement
of cash flows regarding its investment in Vancouver?
Solutions
Expert Solution
| Millions $ | |||||
| 1.) | Date | Account Titles | Debit | Credit | |
| January 2,2021 | Investment in Vancouver Timber and Milling, Inc | 580.00 | |||
| Cash | 580.00 | ||||
| ( To record investment ) | |||||
| December 31,2021 | Investment in Vancouver Timber and Milling, Inc | 80.00 | |||
| Investment Revenue ( 200 x 40% ) | 80.00 | ||||
| ( to record investment revenue ) | |||||
| December 31,2021 | Cash ( 40 x 40% ) | 16.00 | |||
| Investment in Vancouver Timber and Milling, Inc | 16.00 | ||||
| ( To record the dividend ) | |||||
| December 31,2021 | Investment Revenue ( 30 / 15 ) x 40% | 0.80 | |||
| Investment in Vancouver Timber and Milling, Inc | 0.80 | ||||
| ( To record amortization of excess of plant value ) | |||||
| December 31,2021 | Investment Revenue ( 5 x 40% ) | 2.00 | |||
| Investment in Vancouver Timber and Milling, Inc | 2.00 | ||||
| ( to record inventory sold out adjustment ) | |||||
| 2.) | Investment Revenue | $ 77.20 million | ( 80 - 0.80 - 2 ) |
| 3.) | Investment in Vancourver | $ 641.20 million | ( 580 + 80 - 16 - 0.80 - 2 ) |
| 4.) | Investment Activities | ||
| Investment in Vancouver Timber and Milling, Inc | -$ 580.00 | Million | |
| Operating Activities | |||
| Dividend Revenue | $16.00 | Million | |
ekkarill92 answered 1 year agoRelated Solutions
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Northwest Paperboard Company, a paper and allied products
manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2021, for $560
million.
At the date of purchase, the book value of Vancouver's net
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facilities. The fair value...
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manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2018, for $550
million.
At the date of purchase, the book value of Vancouver's net assets
was $850 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
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Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in...
Northwest Paperboard Company, a paper and allied products
manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2021, for $460
million.
At the date of purchase, the book value of Vancouver's net assets
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Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in...
Northwest Paperboard Company, a paper and allied products
manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2018, for $420
million.
At the date of purchase, the book value of Vancouver's net assets
was $785 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
facilities. The fair value...
Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in...
Northwest Paperboard Company, a paper and allied products
manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2018, for $540
million.
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was $845 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
facilities. The fair value...
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manufacturer, was seeking to gain a foothold in Canada. Toward that
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million. At the date of purchase, the book value of Vancouver's net
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balance sheet items were the same except for inventory and plant
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end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2018, for $590
million.
At the date of purchase, the book value of Vancouver's net assets
was $870 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
facilities. The fair value...
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