On January 1, 2020, Selected Limited purchased 120,000 common shares of Choices Ltd. for $24.50 per...
On January 1, 2020, Selected Limited purchased 120,000 common shares of Choices Ltd. for $24.50 per share. At the time, Choices had 600,000 shares outstanding. At the time of purchase, Choice's equipment was undervalued by $88,000 and had a remaining useful life of 11 years. Both companies have a December 31 year-end.On May 31, Senator declared and paid a cash dividend of $0.25 per share. On December 31, 2020, Choice reported a net income of $360,000. The shares in Choice were trading at $21.75 per share on that day.
A) Assume that the investment in Choice does not represent significant influence, and that Selected classifies the investment as FV-NI. Prepare the necessary journal entries on the books of Selected to record the above transactions.
B) Assume that the investment in Choice does represent significant influence. Prepare the necessary journal entries on the books of Selected Limited to record the above transactions. (5Marks)
Homework Answers
PART A) BY FAIR VALUE METHOD
| DATE | GENERAL JOURNAL | DEBIT | CREDIT |
| , JAN 1 , 2020 | Investment in Senator | 2,940,000 | |
| Cash | 2,940,000 | ||
| (To record purchase of Investment.) (120000*24.50) | |||
| MAY 31 | Cash | 30,000 | |
| Dividend Income | 30,000 | ||
| (To record dividend received.) (120000*0.25) | |||
| Dec 31 | No Journal entry Required for Net income. | ||
| Dec 31 | Unrealized holding Loss -NI (Net income) | 330,000 | |
| Fair value Adjustment | 330,000 | ||
| (To record fair value adjustment.) (120000*2.75) | |||
| (Decrease in share price = 24.50-21.75 = 2.75 |
PART B) BY EQUITY METHOD Percentage of ownership acquired (120000/600000) = 20
| DATE | JOURNAL ENTRY | DEBIT | CREDIT |
| Jan 1, 2020 | Investment in Senator (associate) | 2,940,000 | |
| Cash | 2,940,000 | ||
| (To record purchase of significant equity investment.) (120000*24.50) | |||
| May 31 | Cash | 30,000 | |
| Investment in Senator (associate) | 30,000 | ||
| (To record dividend received.) (120000*0.25) | |||
| Dec 31 | Investment in Senator (associate) | 72,000 | |
| Income from Equity Investment | 72,000 | ||
| (To record income from Equity Investment. ) (360000*20%) | |||
| Dec 31 | Income from equity investment | 1,600 | |
| Investment in Senator (associate) | 1,600 | ||
| (To record depreciation on undervalued equipment.) (8000*20%) | |||
| (Depreciation = 88000 / 11 = 8000) | |||
| Dec 31 | No Journal entry Required for Fair Value Adjustment. |
Add Answer to:
On January 1, 2020, Selected Limited purchased 120,000 common
shares of Choices Ltd. for $24.50 per...
On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per...
On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per share. At the time, Senator had 600,000 shares outstanding. At the time of purchase, Senator's equipment was undervalued by $88,000 and had a remaining useful life of 11 years. Both companies have a December 31 year-end. On May 31, Senator declared and paid a cash dividend of $0.25 per share. On December 31, 2020, Senator reported a net income of $360,000. The shares in...
On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per...
On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per share. At the time, Senator had 600,000 shares outstanding. At the time of purchase, Senator's equipment was undervalued by $88,000 and had a remaining useful life of 11 years. Both companies have a December 31 year-end. On May 31, Senator declared and paid a cash dividend of $0.25 per share. On December 31, 2020, Senator reported a net income of $360,000. The shares in...
Vaughn Inc acquired 125,000 common shares, which is 25% of the outstanding common shares, of Tahiti Ltd. on January 1, 2...
Vaughn Inc acquired 125,000 common shares, which is 25% of the
outstanding common shares, of Tahiti Ltd. on January 1, 2020 for
$806,250. At the time of purchase, Tahiti Ltd. depreciable assets
were undervalued by $42,840. The depreciable assets had a remaining
useful life of 5 years with no salvage value. Tahiti Ltd. declared
and paid a cash dividend of $0.55 per share on July 31, 2020.
Tahiti Ltd. reported $1.2 million as net income on December 31,
2020 for...
On January 1, 2020, Allen Corporation purchased 30% of the 15,000 outstanding common shares of Towne...
On January 1, 2020, Allen Corporation purchased 30% of the 15,000 outstanding common shares of Towne Corporation at $15 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $12,000. Towne Corporation declared and paid cash dividends of $4,000 on December 30, 2020, to shareholders on record. As of December 31, 2020, common shares...
Question 7 On January 3, 2020, Pina Colada Limited purchased 1,900 (19%) of the common shares...
Question 7On January 3,2020, Pina Colada Limited purchased 1,900 (19%) of the common shares of Sonja Corp. for $329,840. The following information is provided about the identifiable assets and liabilities of Sonja at the date of acquisition:Carrying AmountFair ValueAssets not subject to depreciation$504,000$504,000Assets subject to depreciation (10 years remaining)814,0001,044,000 Total identifiable assets1,318,0001,548,000Liabilities82,00082,000 During 2020, Sonja reported the following information on its statement of comprehensive income: Income before discontinued operations $172,000Discontinued operations (net of tax) (57,400)Net income and comprehensive income 114,600Dividends declared...
Pina Inc acquired 125,000 common shares, which is 25% of the outstanding common shares of Tahiti...
Pina Inc acquired 125,000 common shares, which is 25% of the outstanding common shares of Tahiti Ltd. on January 1, 2020 for $793,750. At the time of purchase, Tahiti Ltd. depreciable assets were undervalued by $38,080. The depreciable assets had a remaining useful life of 5 years with no salvage value. Tahiti Ltd. declared and paid a cash dividend of $0.40 per share on July 31, 2020. Tahiti Ltd. reported $1.1 million as net income on December 31, 2020 for...
On January 1, 2019, Seminole Inc. purchased 300 shares of Cornett Company common stock at $40...
On January 1, 2019, Seminole Inc. purchased 300 shares of Cornett Company common stock at $40 per share. The investment in Cornett Company stock has a market value of $10,500 on December 31, 2019. Seminole recorded the necessary year-end journal entry to record the unrealized gain or loss. Assume that on February 1, 2020, Seminole sold its investment in Cornett stock for $10,000. Required: Prepare the journal entries of Seminole to record the sale. 3 journal entries
On September 1, 2020, Tech Company purchased 2,800 shares of common stock of Eagle Inc. for...
On September 1, 2020, Tech Company purchased 2,800 shares of common stock of Eagle Inc. for $280,000, while not obtaining significant influence over Eagle Inc. On November 1, 2020, Tech Company sold 1,400 shares of the Eagle Inc. stock for $105 per share and incurred brokerage fees of $672 on the sale. At December 31, 2020, Eagle Inc. declared and paid dividends of $5 per share. The fair value of the remaining investment in Eagle Inc. was $154,000 on December...
Bonita Inc acquired 100,000 common shares, which is 25% of the outstanding common shares, of Tahiti...
Bonita Inc acquired 100,000 common shares, which is 25% of the outstanding common shares, of Tahiti Ltd. on January 1, 2020 for $668,000. At the time of purchase, Tahiti Ltd. depreciable assets were undervalued by $46,000. The depreciable assets had a remaining useful life of 5 years with no salvage value. Tahiti Ltd. declared and paid a cash dividend of $0.45 per share on July 31, 2020. Tahiti Ltd. reported $1.2 million as net income on December 31, 2020 for...
Swifty Inc acquired 100,000 common shares, which is 25% of the outstanding common shares of Tahiti...
Swifty Inc acquired 100,000 common shares, which is 25% of the outstanding common shares of Tahiti Ltd. on January 1, 2020 for $552,000. At the time of purchase, Tahiti Ltd. depreciable assets were undervalued by $45,000. The depreciable assets had a remaining useful life of 5 years with no salvage value. Tahiti Ltd. declared and paid a cash dividend of $0.30 per share on July 31, 2020. Tahiti Ltd. reported $1.2 million as net income on December 31, 2020 for...
On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per share. At the time, Senator had 600,000 shares outstanding. At the time of purchase, Senator's equipment was undervalued by $88,000 and had a remaining useful life of 11 years. Both companies have a December 31 year-end. On May 31, Senator declared and paid a cash dividend of $0.25 per share. On December 31, 2020, Senator reported a net income of $360,000. The shares in...
On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per share. At the time, Senator had 600,000 shares outstanding. At the time of purchase, Senator's equipment was undervalued by $88,000 and had a remaining useful life of 11 years. Both companies have a December 31 year-end. On May 31, Senator declared and paid a cash dividend of $0.25 per share. On December 31, 2020, Senator reported a net income of $360,000. The shares in...
Vaughn Inc acquired 125,000 common shares, which is 25% of the
outstanding common shares, of Tahiti Ltd. on January 1, 2020 for
$806,250. At the time of purchase, Tahiti Ltd. depreciable assets
were undervalued by $42,840. The depreciable assets had a remaining
useful life of 5 years with no salvage value. Tahiti Ltd. declared
and paid a cash dividend of $0.55 per share on July 31, 2020.
Tahiti Ltd. reported $1.2 million as net income on December 31,
2020 for...
On January 1, 2020, Allen Corporation purchased 30% of the 15,000 outstanding common shares of Towne Corporation at $15 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $12,000. Towne Corporation declared and paid cash dividends of $4,000 on December 30, 2020, to shareholders on record. As of December 31, 2020, common shares...
Pina Inc acquired 125,000 common shares, which is 25% of the outstanding common shares of Tahiti Ltd. on January 1, 2020 for $793,750. At the time of purchase, Tahiti Ltd. depreciable assets were undervalued by $38,080. The depreciable assets had a remaining useful life of 5 years with no salvage value. Tahiti Ltd. declared and paid a cash dividend of $0.40 per share on July 31, 2020. Tahiti Ltd. reported $1.1 million as net income on December 31, 2020 for...
On September 1, 2020, Tech Company purchased 2,800 shares of common stock of Eagle Inc. for $280,000, while not obtaining significant influence over Eagle Inc. On November 1, 2020, Tech Company sold 1,400 shares of the Eagle Inc. stock for $105 per share and incurred brokerage fees of $672 on the sale. At December 31, 2020, Eagle Inc. declared and paid dividends of $5 per share. The fair value of the remaining investment in Eagle Inc. was $154,000 on December...
Bonita Inc acquired 100,000 common shares, which is 25% of the outstanding common shares, of Tahiti Ltd. on January 1, 2020 for $668,000. At the time of purchase, Tahiti Ltd. depreciable assets were undervalued by $46,000. The depreciable assets had a remaining useful life of 5 years with no salvage value. Tahiti Ltd. declared and paid a cash dividend of $0.45 per share on July 31, 2020. Tahiti Ltd. reported $1.2 million as net income on December 31, 2020 for...
Swifty Inc acquired 100,000 common shares, which is 25% of the outstanding common shares of Tahiti Ltd. on January 1, 2020 for $552,000. At the time of purchase, Tahiti Ltd. depreciable assets were undervalued by $45,000. The depreciable assets had a remaining useful life of 5 years with no salvage value. Tahiti Ltd. declared and paid a cash dividend of $0.30 per share on July 31, 2020. Tahiti Ltd. reported $1.2 million as net income on December 31, 2020 for...
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 10 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 10 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 10 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 10 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 10 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 10 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 10 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 10 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 10 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 10 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 10 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 10 months ago