Question

Harper,  Inc. acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2017, for $259,200 in cash. The book value of Kinman's net assets on that date was $465,000, although one of the company's buildings, with a $72,200 carrying amount, was actually worth $129,700. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $125,500.

Kinman sold inventory with an original cost of $109,200 to Harper during 2017 at a price of $156,000. Harper still held $16,200 (transfer price) of this amount in inventory as of December 31, 2017. These goods are to be sold to outside parties during 2018.

Kinman reported a $49,800 net loss and a $27,000 other comprehensive loss for 2017. The company still manages to declare and pay a $9,000 cash dividend during the year.

During 2018, Kinman reported a $55,000 net income and declared and paid a cash dividend of $11,000. It made additional inventory sales of $124,000 to Harper during the period. The original cost of the merchandise was $77,500. All but 30 percent of this inventory had been resold to outside parties by the end of the 2018 fiscal year.

Prepare all journal entries for Harper for 2017 and 2018 in connection with this investment. Assume that the equity method is applied. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

Date	General Journal	Debit	Credit
1/1/2017	Investment in Kinman Co	$
	Cash		$
	(To record initial investment)
During 2017	Dividends Receivable	$
	Investment in Kinman Co		$
	(To record dividend declaration)
	Cash	$
	Dividends Receivable		$
	(To record receipt of dividend)
12/31/2017	Equity in Kinman Income - Loss	$
	Other Comprehensive Loss of Kinman	$
	Investment in Kinman Co		$
	(To record accrual of income and OCI from equity investee, 40% of reported balances)
12/31/2017	Equity in Kinman Income - Loss	$
	Investment in Kinman Co		$
	(To record amortization relating to acquisition Of Kinman)
12/31/2017	Equity in Kinman Income-Loss	$
	Investment in Kinman Co		$
	(To defer unrealized gross profit on intra-entity Sale)
During 2018	Dividends Receivable	$
	Investment in Kinman Co		$
	(To record dividend declaration)
	Cash	$
	Dividends Receivable		$
	(To record receipt of dividend)
12/31/2018	Investment in Kinman Co	$
	Equity in Kinman Income		$
	(To reccord the 40% accrual income as earned by equity investee)
12/31/2018	Equity in Kinman Income	$
	Investment in Kinman Co		$
	(To record the amortization relating to the Acquisition of Kinman)
12/31/2018	Investment in Kinman Co	$
	Equity in Kinman Income		$
	(To recognize income deferred from 2017)
12/31/2018	Equity in Kinman Income	$
	Investment in Kinman Co		$
	(To deferred Unrealized gross profit on intera equity sale)

Answer 1

Date	General Journal	Debit	Credit
1/1/2017	Investment in Kinman Co	$259,000
	Cash		$259,000
	(To record initial investment)
During 2017	Dividends Receivable($9,000×40%)	$3,600
	Investment in Kinman Co		$3,600
	(To record dividend declaration)
	Cash	$3,600
	Dividends Receivable		$3,600
	(To record receipt of dividend)
12/31/2017	Equity in Kinman Income - Loss	$19,920
	Other Comprehensive Loss of Kinman	$10,800
	Investment in Kinman Co		$30,720
	(To record accrual of income and OCI from equity investee, 40% of reported balances)
12/31/2017	Equity in Kinman Income-Loss	$1,944
	Investment in Kinman Co		$1,944
	(To defer unrealized gross profit on intra-entity Sale)
During 2018	Dividends Receivable(11000*40%)	$4,400
	Investment in Kinman Co		$4,400
	(To record dividend declaration)
	Cash	$4,400
	Dividends Receivable		$4,400
	(To record receipt of dividend)
12/31/2018	Investment in Kinman Co(49800*40%)	$19,920
	Equity in Kinman Income		$19,920
	(To reccord the 40% accrual income as earned by equity investee)

Working:

	Gross profit rate	46800	156000-109200
		30%	46800/156000
Unsold inventory	16200
	4860	16200*30%
	1944	4860*40%
Net loss reported (40% of 49800)						19920
net comprehensive loss(40% of 27000)						10800