Question
In: Accounting
Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in...
Northwest Paperboard Company, a paper and allied products
manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2018, for $450
million.
At the date of purchase, the book value of Vancouver's net assets
was $800 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
facilities. The fair value exceeded book value by $10 million for
the inventory and by $15 million for the plant facilities.
The estimated useful life of the plant facilities is 12 years. All
inventory acquired was sold during 2018.
Vancouver reported net income of $190 million for the year ended
December 31, 2018. Vancouver paid a cash dividend of $60
million.
Required:
1. Prepare all appropriate journal entries related
to the investment during 2018.
2. What amount should Northwest report as its
income from its investment in Vancouver for the year ended December
31, 2018?
3. What amount should Northwest report in its
balance sheet as its investment in Vancouver?
4. What should Northwest report in its statement
of cash flows regarding its investment in Vancouver?
Solutions
Expert Solution
| $ in Million | |||
| S. No. | Account Tittle | Debit | Credit |
| 1 | Investment in Vancouver | $450.00 | |
| Cash | $450.00 | ||
| TO Record Investment made | |||
| 2 | Investment in Vancouver ($190X40%) | $76.00 | |
| Investment Revenue | $76.00 | ||
| To Record share of Income | |||
| 3 | Cash ($60X40%) | $24.00 | |
| Investment in Vancouver | $24.00 | ||
| TO Record Dividend received | |||
| 4 | Investment Revenue | $4.00 | |
| Investment in Vancouver ($10X40%) | $4.00 | ||
| TO Record Adjustment of Inventory | |||
| 5 | Investment Revenue | $0.50 | |
| Investment in Vancouver ($15 X 40%)/12 year | $0.50 | ||
| TO Record depreciation adjustment | |||
|
2. Computation of Income from Invesment in Vancouver ( $ in Million) |
|
| Share in Income ( $190X 40%) | $76.00 |
| Less: Adjustment of Inventory | -$4.00 |
| Less: Adjustment for Depreciaiton | -$0.50 |
| Income from Invesment in V | $71.50 |
| 3. Computation of Invesment Value in Vancouver to be reported in Balance sheet( $ in Million) | |
| Investmnet Made | $450.00 |
| Add: Share in Income ( $190X 40%) | $76.00 |
| Less: Dividend Received | -$24.00 |
| Less: Adjustment of Inventory | -$4.00 |
| Less: Adjustment for Depreciaiton | -$0.50 |
| Income from Invesment in V | $497.50 |
| 4 A) Operating Cash Flow :$ 24 Million | |
| 4(b) Investng Cash Flow: $450 Million | |
ekkarill92 answered 1 year agoRelated Solutions
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manufacturer, was seeking to gain a foothold in Canada. Toward that
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manufacturer, was seeking to gain a foothold in Canada. Toward that
end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2018, for $420
million.
At the date of purchase, the book value of Vancouver's net assets
was $785 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant
facilities. The fair value...
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manufacturer, was seeking to gain a foothold in Canada. Toward that
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million.
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sheet items were the same except for inventory and plant
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