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 $600 million. At the date of purchase, the book value of Vancouver's net assets was $875 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 $220 million for the year ended December 31, 2021. Vancouver paid a cash dividend of $60 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? Complete this question by entering your answers in the tabs below. Req 2 and 3 Req 1 Req 4 Prepare all appropriate journal entries related to the investment during 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) View transaction list Journal entry worksheet 3 4

Answer 1

Answer: Requirement 1: ($ in millions) Debit($) Credit($) 600.00 600.00 88.00 88.00 24.00 02-01-2021 Investment in Vancouver T&M shares Cash [To record Investment] 31-12-2021 Investment in Vancouver T&M shares Investment revenue [To record net income] 31-12-2021 Cash Investment in Vancouver T&M shares [To record dividend] 31-12-2021 Investment revenue Investment in Vancouver T&M shares [To record inventory adjustment] 31-12-2021 Investment revenue Investment in Vancouver T&M shares [To record Depreciation Adjustment] 2.00 0.80

Workings: Net income: Investment in Vancouver T&M shares (40% x $220 million) = $88 Dividends: Cash (40% $60 million) = $24 Inventory adjustment: Investment revenue ($5 million x 40%: all sold in 2021) = $2 Depreciation adjustment: Investment revenue ($30 million x 40%] = 15 years) = $0.8 Requirement 2&3: Income Statement amount Balance Sheet amount $85.20 Million $661.20 Million Requirement 4: Operating Cash flow Investing cash flow $24 Million $600 Million Inflow Outflow

Workings: Investee Net Assets Net Assets Purchased 600 Difference Attributed to: Investment Revenue ($ in millions) 88.00 Share of income 2.00 0.80 Cost Goodwill: SD Inventory Depreciation Fair value: S 910 * x 40% = $ 364 Balance 85.20 inventory x 40% Undervaluation of inventory: Undervaluation of Plant: plant facilities -30|| X 40% Book value: $ 875 x 40% =S 350 Investment in Vancouver T&M shares ($ in millions) | Cost 600.00 Share of income 88.00 24.00 Dividends | 2.00 Inventory 0.80 Depreciation Balance 661.20