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40. Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2011,
for $105,000 when the book value of Gates was $600,000. During 2011 Gates reported
net income of $150,000 and paid dividends of $50,000. On January 1, 2012, Dodge
purchased an additional 25% of Gates for $200,000. Any excess cost over book value
is attributable to goodwill with an indefinite life. The fair-value method was used
during 2011 but Dodge has deemed it necessary to change to the equity method after
the second purchase. During 2012 Gates reported net income of $200,000 and reported
dividends of $75,000.
The balance in the investment account at December 31, 2012, is
41. Clancy Incorporated, sold $210,000 of its inventory to Reid Company during
2011 for $350,000. Reid sold $224,000 of this merchandise in 2011 with the remainder
to be disposed of during 2012. Assume Clancy owns 30% of Reid and applies the
equity method.
What journal entry will be recorded at the end of 2011 to defer the unrealized intra-
entity profits?
42. Clancy Incorporated, sold $210,000 of its inventory to Reid Company during
2011 for $350,000. Reid sold $224,000 of this merchandise in 2011 with the remainder
to be disposed of during 2012. Assume Clancy owns 30% of Reid and applies the
equity method.
What journal entry will be recorded in 2012 to realize the intra-entity profit that was
deferred in 2011?
43. On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on
January 1, 2011, was $1,150,000. Any excess of cost over book value for this second
transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment.
What is the balance in the investment account at December 31, 2010?
44. On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on
January 1, 2011, was $1,150,000. Any excess of cost over book value for this second
transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment.
How much income did Mehan report from Cook during 2010?
45. On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on
January 1, 2011, was $1,150,000. Any excess of cost over book value for this second
transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment.
How much income did Mehan report from Cook during 2011?
46. On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on
January 1, 2011, was $1,150,000. Any excess of cost over book value for this second
transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment.
What was the balance in the investment account at December 31, 2011?
47. On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on
January 1, 2011, was $1,150,000. Any excess of cost over book value for this second
transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment.
What was the balance in the investment account at April 1, 2012 just before the sale of
shares?
48. On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on
January 1, 2011, was $1,150,000. Any excess of cost over book value for this second
transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment.
How much of Cook's net income did Mehan report for the year 2012?
49. On January 4, 2010, Harley, Inc. acquired 40% of the outstanding common
stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise
significant influence over Bike. Bike's assets on that date were recorded at
$10,500,000 with liabilities of $4,500,000. There were no other differences between
book and fair values.
During 2010, Bike reported net income of $500,000. For 2011, Bike reported net
income of $800,000. Dividends of $300,000 were paid in each of these two years.
How much income did Harley report from Bike for 2010?
50. On January 4, 2010, Harley, Inc. acquired 40% of the outstanding common
stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise
significant influence over Bike. Bike's assets on that date were recorded at
$10,500,000 with liabilities of $4,500,000. There were no other differences between
book and fair values.
During 2010, Bike reported net income of $500,000. For 2011, Bike reported net
income of $800,000. Dividends of $300,000 were paid in each of these two years.
How much income did Harley report from Bike for 2011?
51. On January 4, 2010, Harley, Inc. acquired 40% of the outstanding common
stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise
significant influence over Bike. Bike's assets on that date were recorded at
$10,500,000 with liabilities of $4,500,000. There were no other differences between
book and fair values.
During 2010, Bike reported net income of $500,000. For 2011, Bike reported net
income of $800,000. Dividends of $300,000 were paid in each of these two years.
What was the reported balance of Harley's Investment in Bike Co. at December 31,
2010?
52. On January 4, 2010, Harley, Inc. acquired 40% of the outstanding common
stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise
significant influence over Bike. Bike's assets on that date were recorded at
$10,500,000 with liabilities of $4,500,000. There were no other differences between
book and fair values.
During 2010, Bike reported net income of $500,000. For 2011, Bike reported net
income of $800,000. Dividends of $300,000 were paid in each of these two years.
What was the reported balance of Harley's Investment in Bike Co. at December 31,
2011?
53. On January 1, 2011, Anderson Company purchased 40% of the voting common
stock of Barney Company for $2,000,000, which approximated book value. During
2011, Barney paid dividends of $30,000 and reported a net loss of $70,000.
What is the balance in the investment account on December 31, 2011?
54. On January 1, 2011, Anderson Company purchased 40% of the voting common
stock of Barney Company for $2,000,000, which approximated book value. During
2011, Barney paid dividends of $30,000 and reported a net loss of $70,000.
What amount of equity income would Anderson recognize in 2011 from its ownership
interest in Barney?
55. Luffman Inc. owns 30% of Bruce Inc. and appropriately applies the equity
method. During the current year, Bruce bought inventory costing $52,000 and then
sold it to Luffman for $80,000. At year-end, all of the merchandise had been sold by
Luffman to other customers. What amount of unrealized intercompany profit must be
deferred by Luffman?
56. On January 3, 2011, Roberts Company purchased 30% of the 100,000 shares of
common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or
other cost allocation associated with the investment. Roberts has significant influence
over Thomas. During 2011, Thomas reported income of $300,000 and paid dividends
of $100,000. On January 4, 2012, Roberts sold 15,000 shares for $800,000.
What was the balance in the investment account before the shares were sold?
57. On January 3, 2011, Roberts Company purchased 30% of the 100,000 shares of
common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or
other cost allocation associated with the investment. Roberts has significant influence
over Thomas. During 2011, Thomas reported income of $300,000 and paid dividends
of $100,000. On January 4, 2012, Roberts sold 15,000 shares for $800,000.
What is the gain/loss on the sale of the 15,000 shares?
58. On January 3, 2011, Roberts Company purchased 30% of the 100,000 shares of
common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or
other cost allocation associated with the investment. Roberts has significant influence
over Thomas. During 2011, Thomas reported income of $300,000 and paid dividends
of $100,000. On January 4, 2012, Roberts sold 15,000 shares for $800,000.
What is the balance in the investment account after the sale of the 15,000 shares?
59. On January 3, 2011, Roberts Company purchased 30% of the 100,000 shares of
common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or
other cost allocation associated with the investment. Roberts has significant influence
over Thomas. During 2011, Thomas reported income of $300,000 and paid dividends
of $100,000. On January 4, 2012, Roberts sold 15,000 shares for $800,000.
What is the appropriate journal entry to record the sale of the 15,000 shares?
