Question

In: Accounting

On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough...

On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough Company for $335,000. This investment enabled SPU to exercise significant influence over Brough.

    The book value of the acquired shares was $315,000 (the book value of Brough Co was $1,050,000). The excess of cost over book value was attributed to a building that was undervalued on Brough’s balance sheet and that had a remaining useful life of 10 years.  

    For the year ended December 31, 2017, Brough reported income of $70,000 and paid cash dividends of $15,000 on its common stock.

A) Make all journal entries necessary on SPU’s books to record its investment in Brough Company for the first year.

B) What is the ending balance of SPU’s investment in Brough at December 31, 2017?

Solutions

Expert Solution

Solution A:

Journal Entries - SPU Corporation (Equity Method)
Date Particulars Debit Credit
2-Jan-17 Investment in Brough Company Dr $335,000.00
            To Cash $335,000.00
(Being investment made in Brough Company)
31-Dec-17 Investment in Brough Company Dr $21,000.00
            To Investment Income ($70,000*30%) $21,000.00
(Being share of income recoganised for investment in Associate enterprise - Brough Company)
31-Dec-17 Cash Dr ($15,000*30%) $4,500.00
            To Investment in Brough Company $4,500.00
(Being dividend received from Associate enterprise - Brough Company)

Solution B:

Ending balance of SPU's investment in Brough = $335,000 + $21,000 - $4,500 = $351,500

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January 1, 2018, and obtained significant influence. The purchase price of the shares was equal to their book value. During 2018, the following information is available for Crowell: Mar. 31 Declared and paid a cash dividend of $50,000. June 30 Reported semiannual earnings of $120,000 for the first half of 2018. Sept. 30 Declared and paid a cash dividend of $50,000. Dec. 31 Reported semiannual...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January 1, 2018, and obtained significant influence. The purchase price of the shares was equal to their book value. During 2018, the following information is available for Crowell: Mar. 31 Declared and paid a cash dividend of $50,000. June 30 Reported semiannual earnings of $120,000 for the first half of 2018. Sept. 30 Declared and paid a cash dividend of $50,000. Dec. 31 Reported semiannual...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,305,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,105,000 including retained earnings of $1,605,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,305,500 Mathias stockholders' equity 2,105,000 Excess fair...
On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne...
On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $528,000 consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $352,000 and Rockne's assets and liabilities had a collective net fair value of $880,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $330,000 in 2018. Since being acquired, Rockne has regularly supplied inventory...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,162,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,070,000 including retained earnings of $1,570,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,162,000 Mathias stockholders' equity 2,070,000 Excess fair...
On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne...
On January 1, 2017, Doone Corporation acquired 70 percent of the outstanding voting stock of Rockne Company for $546,000 consideration. At the acquisition date, the fair value of the 30 percent noncontrolling interest was $234,000 and Rockne's assets and liabilities had a collective net fair value of $780,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $280,000 in 2018. Since being acquired, Rockne has regularly supplied inventory...
On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne...
On January 1, 2017, Doone Corporation acquired 60 percent of the outstanding voting stock of Rockne Company for $600,000 consideration. At the acquisition date, the fair value of the 40 percent noncontrolling interest was $400,000 and Rockne's assets and liabilities had a collective net fair value of $1,000,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $390,000 in 2018. Since being acquired, Rockne has regularly supplied inventory...
Parent Corporation acquired a 70 percent interest in Subsidiary Corporation’s outstanding voting common stock on January...
Parent Corporation acquired a 70 percent interest in Subsidiary Corporation’s outstanding voting common stock on January 1, 2011, for $735,000 cash. The stockholders’ equity of Subsidiary on this date consisted of $750,000 capital stock and $150,000 retained earnings. The difference between the fair value of Subsidiary and the underlying equity acquired in Subsidiary was assigned $7,500 to Subsidiary’s undervalued inventory, $21,000 to undervalued buildings, $31,500 to undervalued equipment, and remainder assigned to goodwill. The undervalued inventory items were Sold during...
Heidebrecht Design acquired 30% of the outstanding common stock of Quayle Company on January 1, 2017,...
Heidebrecht Design acquired 30% of the outstanding common stock of Quayle Company on January 1, 2017, by paying $610,500 for the 40,700 shares. Quayle declared and paid $0.40 per share cash dividends on March 15, June 15, September 15, and December 15, 2017. Quayle reported net income of $315,000 for the year. At December 31, 2017, the market price of Quayle common stock was $26 per share. Prepare the journal entries for Heidebrecht Design for 2017 assuming Heidebrecht Design cannot...
Print Corporation acquired all outstanding $10 par value voting common stock of Size Inc. on January...
Print Corporation acquired all outstanding $10 par value voting common stock of Size Inc. on January 1, 20X9, in exchange for 25,000 shares of its $20 par value voting common stock. On December 31, 20X8, Print’s common stock had a closing market price of $30 per share on a national stock exchange. The acquisition was appropriately accounted for under the acquisition method. Both companies continued to operate as separate business entities maintaining separate accounting records with years ending December 31....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT