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, 2021, for $460 million.

At the date of purchase, the book value of Vancouver's net assets was $805 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 $5 million for the inventory and by $30 million for the plant facilities.

The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2021.

Vancouver reported net income of $200 million for the year ended December 31, 2021. Vancouver paid a cash dividend of $20 million.

Required:
1. Prepare all appropriate journal entries related to the investment during 2021.
2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2021?
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?

Answer 1

1)

			Millions $
Date	Particulars	Debit	Credit
Jan 2,2021	Investment in Vancouver Timber and Milling, Inc	460.00
	Cash		460.00
	(Being to record investment)
Dec 31,2021	Investment in Vancouver Timber and Milling, Inc	80.00
	Investment Revenue (200 x 40%)		80.00
	(Being to record investment revenue)
Dec 31,2021	Cash (20 x 40%)	8.00
	Investment in Vancouver Timber and Milling, Inc		8.00
	(Being to record the dividend)
Dec 31,2021	Investment Revenue [(30 / 15) x 40%]	0.80
	Investment in Vancouver Timber and Milling, Inc		0.80
	(Being to record amortization of excess of plant value)
Dec 31,2021	Investment Revenue (5 x 40%)	2.00
	Investment in Vancouver Timber and Milling, Inc		2.00
	(Being to record inventory sold out adjustment)

2.)	Investment Revenue (80 - 0.80 - 2)	$ 77.20 million
3.)	Investment in Vancourver (460 + 80 - 8 - 0.80 - 2)	$ 529.20 million
4.)	Investment Activities
	Investment in Vancouver Timber and Milling, Inc	-$ 460.00 Million
	Operating Activities
	Dividend Revenue	$8.00 Million

I hope it is useful to u if u have any doubt pls comment give me up thumb