Question

1/ John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $850,000. John has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Years Amount 1-6 $ 85,000 7 75,000 8 65,000 9 55,000 10 45,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $750,000. Required: Determine the present value, assuming that John desires a 10% rate of return on this investment. (Assume that all cash flows occur at the end of the year.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

2/ On January 4, 2018, Runyan Bakery paid $326 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $3.50 per share on December 15, 2018, and Lavery reported net income of $160 million for the year ended December 31, 2018. The market value of Lavery's common stock at December 31, 2018, was $30 per share. On the purchase date, the book value of Lavery's net assets was $810 million and:

1. The fair value of Lavery's depreciable assets, with an average remaining useful life of four years, exceeded their book value by $40 million.
2. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Required:
1. Prepare all appropriate journal entries related to the investment during 2018, assuming Runyan accounts for this investment by the equity method.
2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest.

there are two different question

Answer 1

1	Calculate Present value
	Cash Flows multiplied with the 10% factor equals Present Value
	Years	Amount $	10% factor -b	Net Present Value ©=a*b
	1-6	85000	0.9091	77273
	7	75000	0.8264	61983
	8	65000	0.7513	48835
	9	55000	0.6830	37566
	10	45000	0.6209	27941
				253599
2	Requirement 1:
	Date	Account Titles and Explanation	Debit	Credit
	4-Jan-18	Investment in Lavering labeling shares	$ 32,60,00,000
		Cash		$ 32,60,00,000
		(Being Investment purchased)
	15-Dec-18	Investment in Lavering labeling shares	$    4,80,00,000
		Investment Revenue		$    4,80,00,000
		(Being Net income recorded ($160 million X 30%))
	31-Dec-18	Cash	$    3,50,00,000
		Investment in Lavering labeling shares		$    3,50,00,000
		(Being Dividend Paid ($3.50 X 10 million shares))
	31-Dec-18	Investment Revenue	$3,000,000
		Investment in Lavering labeling shares		$3,000,000
		(Being depreciation adjusted ($40 million X 30%/4 years)
	31-Dec-18	No Entry
		No Entry
		(No entry required for equity method)
	Note:	Net Assets purchased	Difference
	Cost	$326 million	Goodwill = $326 million - $255 million = 71 million
	Fair Value	($810 million + $40 million) X 30% = $255 million	Undervaluation of depreciable asset
	Book value	$810 million X 30% = $243 million	$255 million - $243 million = 12 million
	Requirement 2:
		Account Titles and Explanation	Debit	Credit
	4-Jan-18	Investment in Lavering labeling shares	$ 32,60,00,000
		Cash		$ 32,60,00,000
		(Being Investment purchased)
	15-Dec-18	No Entry
		No Entry
		(No entry required)
	31-Dec-18	Cash
		Investment in Lavering labeling shares	$    3,50,00,000
		(Being Dividend Paid ($3.50 X 10 million shares))		$    3,50,00,000
	31-Dec-18	Net unrealized holding gain or loss - OCI	$    2,60,00,000
		Fair value adjustment		$    2,60,00,000
		(Being Adjustment entry recorded)
		[($30 per share X 10 million shares) - $326 millions] = 26 million