Question

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 $550 million.

At the date of purchase, the book value of Vancouver's net assets was $850 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 15 years. All inventory acquired was sold during 2018.

Vancouver reported net income of $170 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.

1. Record the entry related to the purchase. 2. Record the entry related to the net income. 3. Record the entry related to the dividends. 4. Record the entry related to the inventory adjustment. 5. Record the entry related to the depreciation adjustment.

?2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018 and in its balance sheet as its investment in Vancouver? (Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

3. What amount should Northwest report in its balance sheet as its investment in Vancouver?

	2. Income Statement Amount million 3. Balance Sheet Amount million

4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver? (Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)

	Operating cash flow million Investing cash flow million

Answer 1

1. Journal Entry ( $ in Million)
Date	Accounts Title	Debit	Credit
a	Investment in Vancouver Timber & Milling Inc	$550.00
	Cash		$550.00
	To Record Investment made in Vancouver
b	Investment in Vancouver Timber & Milling Inc	$68.00
	Investment revenue (170*40%)		$68.00
	To Record Share of Income
c	Cash (60*40%)	$24.00
	Investment in Vancouver Timber & Milling Inc		$24.00
	To Record Dividend Received
d	Investment revenue ($10*40%)	$4.00
	Investment in Vancouver Timber & Milling Inc		$4.00
	To Record Change in Fair Value of Inventory
e	Investment revenue (15/15 years*40%)	$0.40
	Investment in Vancouver Timber & Milling Inc		$0.40
	To Record Fair value change for Plant Facilities
2	Income statement amount ($68 -4-0.40)	$63.6 Million
3	Balance Sheet ($550+$68-24-$4- 0.40)	$589.60 Million
4.a.	Operating Cash Flow	24 Million
4.b.	Investing Cash Flow	550 Million