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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 $280 million. During 2018, Lake declared and paid cash dividends of $25 million. The buildings have a remaining life of 10 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.

Solutions

Expert Solution

Ans:

Journal Entries
Event Account Title and Explanation Debit Credit
1) Investment in lake construction shares $ 360
Cash $ 360
(To record the Investment)
2) Investment in Lake Construction of Shares(280*20%) $ 56
Investment Revenue $ 56
(To record the Investment Revenue)
3) Cash $ 5
Investment in Lake Construction Share(25*20%) $ 5
( To Record the collection of Dividend)
4) Investment Revenue(50/5*20%) $ 2
Investment in lake Construction Shares $ 2
(To Record the adjustment of Depreciation Expense)
2) $ in Millions
a.investment in cameron's 2018 Balance Sheet(360+56-5-2) 409
b.Investment revenue in the income Statement(56-2) 54
c.Investment in the Statement of cash flows(360-5) 355

ekkarill92 answered 1 year ago
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