Question

1. Equity Securities – Significant Influence (Equity Method). See’s Candies bought 40% of Molly’s Ice Cream Co. on January 2, 2019 for 60 million. The carrying value of Molly’s assets on that date was $100 million. Book value and fair values were the same for all financial statement items except for inventory and buildings, for which fair value exceeded book value by $5 million and $25 million, respectively. All inventory on hand at the date of acquisition was sold during 2019. The buildings have a remaining life of 10 years. During 2019, Molly reported total Net Income of $30 million and paid dividends of $10 million. The Fair Value of the Investment at the end of 2019 was $63 million.

a. Prepare the appropriate journal entries for this investment for 2019. (You can make your JE’s in Millions)

i. Journal Entry #1

ii. Journal Entry #2

iii. Journal Entry #3

iv. Journal Entry #4

b. What are the amounts that See’s Candies should report relative to this investment in the following 2019 Financial Statements:

i. Income Statement

ii. Balance Sheet

iii. Statement of Cash Flows

Answer 1

	Equity Method of Investments
			Amount in $ Millions
a.)	S.No.	Account Titles	Debit	Credit
	1	Equity Method of Investments-Molly's ice cream	60
		Cash		60
	2	Equity Method of Investments-Molly's ice cream	12
		Earnings from Equity method Investment		12
		(30 x 40% )
	3	Cash	4
		Equity Method of Investments-Molly's ice cream		4
		(10 x 40% )
	4	Equity method investments are not adjusted to fair value at year end.
b.)	(i)	Income Statement
			Amount in $ Millions
		Earnings from Equity method Investment	12
	(ii)	Balance Sheet
			Amount in $ Millions
		Assets
		Non-current assets
		Equity Method of Investments-Molly's ice cream	68	( 60 + 12 - 4 )
	(iii)	Cash Flow statement
			Amount in $ Millions
		Cash flow from operating activities
		Earnings from Equity method Investment	-12
		Cash flow from Investing activities
		Equity Method of Investments-Molly's ice cream	- 60
		Dividend Received from Investment in associates	4