Question
In: Accounting
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 $300 million. During 2018, Lake declared and paid cash
dividends of $20 million. The buildings have a remaining life of 5
years.
Required:
1. Complete the table below and prepare all
appropriate journal entries related to the investment during 2018,
assuming Cameron accounts for this investment by the equity
method.
2. Determine the amounts to be reported by
Cameron.
| ($ in millions) | |
| a. Investment in Cameron’s 2018 balance sheet | |
| b. Investment revenue in the income statement | |
| c. Investing activities in the statement of cash flows | |
| No | Event | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Investment in Lake Construction shares | 600 | |
| Cash | 600 | |||
| 2 | 2 | Investment in Lake Construction shares | 90 | |
| Investment revenue | 90 | |||
| 3 | 3 | Cash | 6 | |
| Investment in Lake Construction shares | 6 | |||
| 4 | 4 | Investment revenue | ||
| Investment in Lake Construction shares |
Solutions
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