Question

In: Accounting

Fizer Pharmaceutical paid $78 million on January 2, 2018, for 6 million shares of Carne Cosmetics...

Fizer Pharmaceutical paid $78 million on January 2, 2018, for 6 million shares of Carne Cosmetics common stock. The investment represents a 25% interest in the net assets of Carne and gave Fizer the ability to exercise significant influence over Carne’s operations. Fizer received dividends of $2 per share on December 21, 2018, and Carne reported net income of $28 million for the year ended December 31, 2018. The fair value of Carne’s common stock at December 31, 2018, was $28.50 per share.

The book value of Carne's net assets was $192 million.

The fair value of Carne's depreciable assets exceeded their book value by $48 million. These assets had an average remaining useful life of twelve years.

The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Required:
Complete the table below and prepare the appropriate journal entries related to the investment during 2018.

(millions) Investee Net Assets x Ownership Interest % Net Assets Purchased Difference Is Attributable to
Purchase Price 78 M
Fair Value Carne's Assets
Book Value Carne's Assets
Depreciation Adjustment Years Adjustment
Investment Revenue /(divide by

Journal Entries. For the 4th Entry*********What should I put there? -To record Depreciation Adjustment?

gen journal account debit credit
1.Investment in Carne Shares (correct) 78
Cash 78
2 Investment in Carne Shares(correct) 7
Investment Revenue 7
3. Cash (correct) 12
Investment in Carne Costmetic Shares 12
4. Investment Revenue ???
Investment in Carne Cosmetic Shares ???
(To record the Depreciation Adjustment)
5. no journal entry required (correct)

Solutions

Expert Solution

Solution:

Completing the table below and Preparing the appropriate journal entries related to the investment during 2018:

($ in millions) Investee Net Assets x Ownership Interest Net Assets Purchased Difference Attributable To
Purchase Price 78
Fair Value Carne's Assets 240 * 25% 60 18 Depreciable Asset
Book Value Value Carne's Assets 192 * 25% 48 30 Goodwill
Depreciation Adjustment Amount/ Years Adjustment
Undervaluation of assets 48/ 12 4

Preparing the Journal Entries for the following:

S.No Account Title and Explanation Debit ($ in millions) Credit ($ in millions)
1 Investment in Carne Cosmetic Shares $78
Cash $78
(To Record the Investment Made)
2 Investment in Carne Shares ($28 * 25%) $7
Investment Revenue $7
(To Record the share of income in Carne Cosmetics)
3 Cash (6 Million * $2) $12
Investment in Carne Costmetic Shares $12
(To Record the Amount of Dividend Received)
4 Investment Revenue $1
Investment in Carne Cosmetic Shares $1
(To record the Depreciation Adjustment)
5 No journal entry required
Particulars Amount
Share in Fair Value of Assets (240 * 25%) $60
Less: Share in Book Value of Assets (192 * 25%) $48
Under Valuation of Assets $12
Life time of Asset (in Yrs) 12
Depreciation Per Year ($12/12) $1

ekkarill92 answered 1 year ago
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