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On 1/1/2012, Tarheel Inc. purchased 40% of Bulldog Inc.’s common stock for $50,000 in cash. At...

On 1/1/2012, Tarheel Inc. purchased 40% of Bulldog Inc.’s common stock for $50,000 in cash. At the date of purchase, Bulldog Inc.’s book value of total assets equaled $200,000 and their book-value of total liabilities equaled $100,000. Bulldog Inc. owned a basket- ball arena that with a book value of $50,000 and a fair market value of $60,000. The remaining useful life of the basketball arena is 10 years. Bulldog’s net income in 2012 was $10,000, and it distributed $5,000 in cash dividends at the end of 2012. On 1/1/2013, after serious considera- tions, Tarheel Inc. reached the conclusion that Bulldog Inc. will underperform in future years and sold all of its shares as a result. The company received $45,000 in cash for Bulldog’s shares.

a. Record Tarheel’s journal entries related to the purchase transaction on 1/1/2012.
b. How much goodwill was created as a result of the purchase transaction?
c. Record all of Tarheel’s journal entries related to its investment in Bulldog during 2012, subsequent to purchase.
d. What is the balance of the investment in Bulldog on Tarheel’s balance sheet on 12/31/2012?
e. Record Tarheel’s journal entries related to the sale of the Bulldog shares on 1/1/2013.

Solutions

Expert Solution

a and c

Account Debit Credit
Investment in Bulldog                50,000
Cash          50,000
[Entry to record investment]
Investment in Bulldog                   4,000
Equity in earnings from Bulldog             4,000
[Entry to record share of earnings]
Cash                   2,000
Investment in Bulldog             2,000
[Entry to record receipt of dividends]
Equity in earnings from Bulldog                      400
Investment in Bulldog                400
[Entry to amortize share of excess fair value]

b

Particulars Amount
Net book value of Bulldog 100,000
Excess fair value of basket-ball arena      10,000
Total value of bulldog 110,000
40% share value      44,000
Particulars Amount
Purchase price      50,000
Less: fair value      44,000
Good will        6,000

d

balance in investment account is 51,600

100% 40%
Particulars Amount
Opening balance
Investment           50,000
Share of net income                  10,000              4,000
Share of dividends                   (5,000)            (2,000)
Depreciation               (400)
Closing balance           51,600
Excess fair value                  10,000
Remaining life                          10
Amortization per year                     1,000
Share                        400

e

Account Debit Credit
Cash                45,000
Investment in Bulldog          51,600
Loss on sale of investment in bulldog                   6,600

ekkarill92 answered 2 years ago
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