Question

On January 1, 2018, Bluewater Ltd. purchased 50% of the outstanding common shares of Huey Corp. for $500,000 cash and has the ability to significantly influence Huey Corp.'s financial and operating policies. At the date of acquisition of the shares, Huey Corp.'s net assets had a fair value of $700,000. Their carrying value was $200,000. The difference was attributable to the fair value of Huey Corp.'s buildings and its land exceeding carrying value, each accounting for one half of the difference. Huey Corp.'s net income for the year ended December 31, 2018, was $90,000. During 2018, Huey Corp. declared and paid cash dividends of $10,000. The buildings have a remaining life of 10 years.

Note: Bluewater Ltd. follows IFRS.

Instructions:

1. Journalize all entries relevant for Bluewater Ltd. during 2018, also accounting for this investment with the equity method.

2. Determine the investment amount to be reported on Bluewater Ltd.'s balance sheet.

3. Determine the investment revenue amount to be reported on Bluewater Ltd.'s income statement.

4. Determine the investing activities amount to be reported on Bluewater Ltd.'s cash flow statement.

Answer 1

a.)	Account Titles & Explanation	Debit $	Credit $
	Investment in Huey Corp.	500,000
	Cash		500,000
	( To record the investment )
	Cash ( 10,000 x 50% )	5,000
	Investment in Huey Corp.		5,000
	( To record the dividend received )
	Investment in Huey Corp.	45,000
	Investment Revenue		45,000
	(90,000 x 50% )
	( To record investment revenue )
	Investment Revenue	12,500
	Investment in Huey Corp.		12,500
	{( 700,000 - 200,000 ) / 2 } /10 x 50%
	( To record amortization of excess value of building)

b.)	Investment amount in Balance sheet	$ 527,500	(500,000 - 5,000 + 45,000 - 12,500 )
	as at December 31,2018
c.)	Investment revenue in Income statement	$ 32,500	(45,000 - 12,500 )
d.)	Cash Flow Statement
	Cash flow from Investing Activities
	Investment in Huey Corp.	- $ 500,000