Question
In: Accounting
On July 1, 2018, Gupta Corporation bought 20% of the outstanding common stock of VB Company...
On July 1, 2018, Gupta Corporation bought 20% of the outstanding common stock of VB Company for $110 million cash. At the date of acquisition of the stock, VB’s net assets had a total fair value of $500 million and a book value of $290 million. Of the $210 million difference, $46 million was attributable to the appreciated value of inventory that was sold during the last half of 2018, $130 million was attributable to buildings that had a remaining depreciable life of 10 years, and $34 million related to equipment that had a remaining depreciable life of 5 years. Between July 1, 2018, and December 31, 2018, VB earned net income of $60 million and declared and paid cash dividends of $40 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2018, assuming Gupta accounts for this investment by the equity method. 2. Determine the amounts to be reported by Gupta.
Solutions
Expert Solution
| Part 1 | ||||
| Date | Account Titles and Explanation | Debit | Credit | W.N |
| 01-07-2018 | Investment in Company V Shares | 11,00,00,000 | ||
| Cash | 11,00,00,000 | |||
| To record purchase of investment | ||||
| 31-12-2018 | Investment in Company LC Shares | 1,20,00,000 | =60000000*20% | |
| Investment Revenue | 1,20,00,000 | |||
| To record shares of net income as revenue from Investment | ||||
| 31-12-2018 | Cash | 80,00,000 | = 40000000*20% | |
| Investment in Company LC Shares | 80,00,000 | |||
| To record receipt of dividends | ||||
| 31-12-2018 | Investment Revenue | 1,11,80,000 | W.N 3 | |
| Investment in Company V Shares | 1,11,80,000 | |||
| To record amortization adjustment |
| W.N 3 | ||
| Details Amount | Amount | Calculation |
| Share of investor in fair value of investee’s net assets | 10,00,00,000 | =(500*20%)*1000000 |
| Share of investor in book value of investee’s net assets | 5,80,00,000 | =(290*20%)*1000000 |
| Difference of depreciable net assets | 4,20,00,000 | |
| Amount attributed to inventory | 92,00,000 | =(46*20%)*1000000 |
| Amount attributed t building | 2,60,00,000 | =(130*20%)*1000000 |
| Deprecation of Building | 13,00,000 | =26000000/10*6/12 |
| Amount attributed to equipment | 68,00,000 | =(34*20%)*1000000 |
| Depreciation of Equipment | 6,80,000 | =6800000/5*6/12 |
| Total Amortization | 1,11,80,000 | =9200000+1300000+680000 |
| Part 2 | |||
| Investment in Company V Shares | |||
| Details | Debit | Details | Credit |
| Cost | 11,00,00,000 | Dividends | 80,00,000 |
| Share of Income | 1,20,00,000 | Depreciation | 1,11,80,000 |
| Total | 12,20,00,000 | Total | 1,91,80,000 |
| Balance | 10,28,20,000 | ||
| Investment Revenue | |||
| Details | Debit | Details | Credit |
| Depreciation | 1,11,80,000 | Share of Income | 1,20,00,000 |
| Total | 1,11,80,000 | Total | 1,20,00,000 |
| Balance | 8,20,000 | ||
ekkarill92 answered 1 year agoRelated Solutions
On July 1, 2018, Gupta Corporation bought 30% of the outstanding common stock of VB Company...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding
common stock of VB Company for $170 million cash. At the date of
acquisition of the stock, VB’s net assets had a total fair value of
$490 million and a book value of $220 million. Of the $270 million
difference, $50 million was attributable to the appreciated value
of inventory that was sold during the last half of 2018, $160
million was attributable to buildings that had a remaining...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding common stock of VB Company...
On July 1, 2018, Gupta Corporation bought 30% of the outstanding
common stock of VB Company for $170 million cash. At the date of
acquisition of the stock, VB’s net assets had a total fair value of
$490 million and a book value of $220 million. Of the $270 million
difference, $50 million was attributable to the appreciated value
of inventory that was sold during the last half of 2018, $160
million was attributable to buildings that had a remaining...
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...
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 $340 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $900 million. Their book value was $850 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...
On January 1, 2018, Cameron Inc. bought 10% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 10% of the outstanding
common stock of Lake Construction Company for $170 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $700 million. Their book value was $600 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...
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...
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 $420 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...
On January 1, 2016, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...
On January 1, 2016, Cameron Inc. bought 20% of the outstanding
common stock of Lake Construction Company for $300 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $900 million. Their book value was $800 million. The
difference was attributable to the fair value of Lake’s buildings
exceeding book value. Lake's net income for the year ended December
31, 2016, was $150 million. During 2016, Lake declared and paid
cash dividends...
Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2018....
Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2018. In December, Handy announced $200,000 net income for 2018 and declared and paid a cash dividend of $2 per share on all 200,000 shares of its outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2018 would be:
Muliple Choice
$28,000
$0
None of these answer choices are comect
$6,000
2. On July 1, 2018, Dynamic Corporation purchased for cash 40% of the outstanding capital stock...
2. On July 1, 2018, Dynamic Corporation purchased for cash 40%
of the outstanding capital stock of Cart Company.
Dynamic has a fiscal year end of October 31st and Cart has a
fiscal year end of March 31st. On October 31st, it has not yet been
determined by Dynamic conclusively whether it has the ability to
significantly influence Cart’s business operation. Cart Company’s
stock is actively traded on the NASDAQ exchange reported its net
income for the period ended October...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Singh Development Co. is deciding whether to proceed with Project X. The cost would be $12...
- CS2123 Data Structures - Fall 2019 Assignment 1: Function Runtimes Table Due 9/11/19 by 11:59pm Completing...
- Question 2. Design a 16-1 MUX using any number of lower MUXs, such as 8-1 or...
- . Write a function that takes, as arguments, two objects, value1 and value2. If
- Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market...
- Consider the distillation of ethanol (C2H5OH) and the combustion of ethanol . Use a bullet point...
- 1.How does Economic exposure to exchange rate movements affect the capital budgeting of a firm? Provide...
ADVERTISEMENT