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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 $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 2 years ago
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