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Equity Investments, Equity Method, Fair Value Option, Net Assets Not Equal to Market Value. Jacob Corporation paid $536,200 for a 30% share of Gardner Enterprises on January 1 of the current year Gardner reported net assets at a book value of $1,414,000 on the date of acquisition. On the date of acquisition, it was determined that Gardner's plant assets were undorvaluod by $118,000 Gardner’s plant assets have a 10-year remaining life and are depreciated by the straight-line method with no residual value. Gardner reported net income of $224,000 and declared and paid cash dividends of $182,000 during the current year. Finally, Gardner s common shares are valued at $1,737,667 at the end of the current year
Required
- a. Compute the amount of
goodwill on the exchange, if any, assuming that the equity method is used to account for the investment. - b. Prepare all
journal entries indicated on the books of the Jacob Corporation under the fair value option and equity methods - c. Assume that Jacob Corporation sold the investment tor $540,000 on January 1 of the next year Prepare the journal entries required to record the sale of the investment under both the fair value option and the equity methods.
- d. Prepare a schedule that compares the amount and timing of revenue recognition for the fair value option and the equity methods.
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Intermediate Accounting (2nd Edition)
- On January 1, 2023, Holland Corporation paid $7 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland's outstanding voting stock, representing a 60 percent ownership interest. The remaining 40,000 shares of Zeeland continued to trade in the market close to its recent average of $5.00 per share both before and after the acquisition by Holland. Zeeland's acquisition date balance sheet follows: Current assets Property and equipment (net) Patents On January 1, 2023, Holland assessed the carrying amount of Zeeland's equipment (5-year remaining life) to be undervalued by $43,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $246,400. Zeeland's acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Any remaining excess of Zeeland's acquisition-date fair value over its book value was attributed to goodwill. The companies' financial statements for the…arrow_forwardOn January 1, 2023, Holland Corporation paid $8 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland's outstanding voting stock, representing a 60 percent ownership interest. The remaining 40,000 shares of Zeeland continued to trade in the market close to its recent average of $6.50 per share both before and after the acquisition by Holland. Zeeland's acquisition date balance sheet follows: Current assets Property and equipment (net) Patents $ 14,800 Liabilities 268,800 Common stock 200,400 Retained earnings $ 224,000 100,000 160,000 $ 484,000 $ 484,000 On January 1, 2023, Holland assessed the carrying amount of Zeeland's equipment (5-year remaining life) to be undervalued by $63,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $315,600. Zeeland's acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Any remaining excess of Zeeland's…arrow_forwardOn January 3, 2020, Novak Limited purchased 3,500 (35%) of the common shares of Sonja Corp. for $468,900. The following information is provided about the identifiable assets and liabilities of Sonja at the date of acquisition: Carrying Amount Fair Value Assets not subject to depreciation $516,000 $516,000 Assets subject to depreciation (10 years remaining) 806,000 866,000 Total identifiable assets 1,322,000 1,382,000 Liabilities 108,000 108,000 During 2020, Sonja reported the following information on its statement of comprehensive income: Income before discontinued operations $208,000 Discontinued operations (net of tax) (71,900) Net income and comprehensive income 136,100 Dividends declared and paid by Sonja November 15, 2020 124,000 Assume that the 35% interest is enough to make Sonja an associate of Novak, and that Novak is required to apply IFRS for its financial reporting. The fair…arrow_forward
- On July 1, 2022, Alicia Company purchased 25% of Clarkson Company's ordinary shares. No goodwill resulted from the acquisition; however, the purchase difference of P1,000,000 was allocated to an undervalued equipment with a remaining useful life of five years. Alicia appropriately carries this investment using equity method and the balance of the investment account was P12,000,000 at December 31, 2022. Clarkson reported profit of P20,000,000 for the year ended December 31, 2022 and paid Alicia dividends of P1,000,000 on December 31, 2022. How much did Alicia pay for its 25% interest in Clarkson Company? A P10,400,000 B) P9,900,000 C) P10,600,000 D P9,650,000arrow_forwardAt the beginning of the current year, Jason Company acquired non-trading equity instrument for P4,000,000. The equity instrument is irrevocably designated as financial asset at fair value through other comprehensive income. The transaction cost incurred amounted to P700,000. The fair value of the instrument was P5,500,000 at year-end and the transaction cost that would be incurred on the sale of the investment is estimated at P600,000. What amount of gain should be recognized in other comprehensive income for the current year? (A P900,000 B) PO c) P200,000 D P800,000arrow_forwardAccountancy Company acquired 75% of the outstanding shares of Finance Company for P900,000. Book value of Finance Company’s net assets is P1,000,000. Upon re-measurement of the acquiree’s net assets, it shows that inventory is overstated by P40,000 and an equipment held for 3 years has a fair value and book value of P420,000 and P360,000, respectively. The original cost of the equipment if P576,000 with no residual value. The NCI was measured at its fair value of P275,000. During the year, Accountancy reported net income from separate operation of P350,000 and received P42,000 dividend from Finance Company. The net income of Finance Company is reported at P135,000. Goodwill impairment attributable to the controlling interest is P13,500. Compute the consolidated net income attributable to the parent.arrow_forward
- Accountancy Company acquired 75% of the outstanding shares of Finance Company for P900,000. Book value of Finance Company’s net assets is P1,000,000. Upon re-measurement of the acquiree’s net assets, it shows that inventory is overstated by P40,000 and an equipment held for 3 years has a fair value and book value of P420,000 and P360,000, respectively. The original cost of the equipment if P576,000 with no residual value. The NCI was measured at its fair value of P275,000. During the year, Accountancy reported net income from separate operation of P350,000 and received P42,000 dividend from Finance Company. The net income of Finance Company is reported at P135,000. Goodwill impairment attributable to the controlling interest is P13,500.A. Compute the consolidated net income attributable to the parent. B. Determine the balance of Non-Controlling Interest – Net Assets Subsidiary (NCINAS).arrow_forwardMama company acquired 75% of the outstanding shares of Finance Company for P900,000. Book value of Papa Company’s net assets is P1,000,000. Upon re-measurement of the acquiree’s net assets, it shows that inventory is overstated by P40,000 and an equipment held for 3 years has a fair value and book value of P420,000 and P360,000, respectively. The original cost of the equipment if P576,000 with no residual value. The NCI was measured at its fair value of P275,000. During the year, Mama reported net income from separate operation of P350,000 and received P42,000 dividend from Papa Company. The net income of Papa Company is reported at P135,000. Goodwill impairment attributable to the controlling interest is P13,500. Compute the consolidated net income attributable to the parent and Non-Controlling Interest – Net Assets Subsidiaryarrow_forwardAdams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2019. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams's acquisition. On December 31, 2019, Barstow had the following account balances: Current assets Land Buildings (10-year remaining life) Equipment (5-year remaining life) Patents (10-year remaining life) Notes payable (due in years) Common stock Retained earnings, 12/31/19 Debits Current assets Land Buildings. Equipment Investment in Barstow, Inc. Cost of goods sold Depreciation expense December 31, 2021, adjusted trial balances for the two companies follow: Adams Corporation Interest expense Dividends declared Total debits Credits Notes payable Common stock Retained earnings, 1/1/21 Revenues Investment income Total credits Book Value $ 160,000 120,000 220,000 160,000 $ 0 (200,000) (180,000) (280,000)…arrow_forward
- PR Company pays $10,000 in cash and issues no-par stock with a fair value of $40,000 to acquire all of SX Corporation's net assets. SX's balance sheet at the date of acquisition is as follows: Current assets Property, plant & equipment, net Identifiable intangible assets Total assets Current liabilities Long-term debt Capital stock Retained earnings Accumulated other comprehensive income Treasury stock Total liabilities & equity Potential contracts with new SX Corporation Book value customers Advanced production technology Future cost savings Customer lists $ 2,000 10,000 4,000 $16,000 $ 1,600 12,000 5,000 8,000 (1,000) (9,600) $16,000 PR's consultants find these items that are not reported on SX's balance sheet: Fair value $ 8,000 4,000 2,000 1,000 Fair value $ 4,200 6,000 14,000 $ 2,000 11,600 Outside consultants are paid $200 in cash, and registration fees to issue PR's new stock are $400. The question below relates to the entry or entries PR makes to record the acquisition on its…arrow_forwardJacob Corporation paid $536,200 for a 30% share of Gardner Enterprises on January 1 of the current year. Gardner reported net assets at a book value of $1,414,000 on the date of acquisition. On the date of acquisition, it was determined that Gardner’s plant assets were undervalued by $118,000. Gardner’s plant assets have a 10-year remaining life and are depreciated by the straight-line method with no residual value. Gardner reported net income of $224,000 and declared and paid cash dividends of $182,000 during the current year. Finally, Gardner’s common shares are valued at $1,737,667 at the end of the current year.arrow_forwardNascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2018. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2018, Sea-Breeze had the following assets and liabilities: Book Value Fair Value Current assets $ 150,000 $ 150,000 Land 200,000 200,000 Buildings (net) (6-year remaining life) 300,000 360,000 Equipment (net) (4-year remaining life) 300,000 280,000 Patent (10-year remaining life) 0 100,000 Liabilities (400,000 ) (400,000 ) The companies’ financial statements for the year ending December 31, 2021, follow: Nascent Sea-Breeze Revenues $ (600,000 ) $ (300,000 ) Operating expenses 410,000 210,000 Investment income (42,000 ) 0 Net income $ (232,000 ) $ (90,000 ) Retained earnings, 1/1/21 $ (700,000 ) $ (300,000 ) Net income…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning