In: Accounting
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.
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 |