Question

On January 1, 2021, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $240 million cash, giving Cameron the ability to exercise significant influence over Lake’s operations. At the date of acquisition of the stock, Lake's net assets had a fair value of $600 million. Its book value was $500 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2021, was $120 million. During 2021, Lake declared and paid cash dividends of $30 million. The buildings have a remaining life of 10 years.

Required 1 Calculation Required 1 G] Required 2 Complete the table below. (Enter your answers in millions, (i.e., 10,000,000 should be entered as 10). ($ in millions) Investee Net Assets Ownership Interest Difference Attributable to: Net Assets Purchased $ 240 Cost Fair Value Lake Construction's assets Book Value Lake Construction's assets $ 01 0 Years Adjustment Depreciation adjustment: Investment revenue < Required 1 Calculation Required 1 GJ >

Required: 1. Complete the table below and prepare all appropriate journal entries related to the investment during 2021, assuming Cameron accounts for this investment by the equity method. (Record the investment in Lake Construction shares, Record the investor's share of net income, Record the cash dividends, Record the adjustment for depreciation)

2. Determine the amounts to be reported by Cameron.

a. Investment in Cameron’s 2021 balance sheet

b. Investment revenue in the income statement

c. Investing activities in the statement of cash flows

Answer 1

Part 1

($ in millions)	Investee Net Assets		Ownership Interest			Net Assets Purchased	Difference	Attributable to:
Cost						240
Fair Value Cameron's assets	600	x	20	%	=	120	$120	Goodwill
Book Value Cameron's assets	500	x	20	%	=	100	$20	Undervaluation of assets
Depreciation adjustment:			Years			Adjustment
	$10	/	10		=	$1

No.	General journal	Debit	Credit
1	Investment in Lake Construction shares	240
	Cash		240
2	Investment in Lake Construction shares (120*20%)	24
	Investment Revenue		24
3	Cash (20%*30)	6
	Investment in Lake Construction shares		6
4	Investment Revenue	1
	Investment in Lake Construction shares		1

Part 2

a.	Investment in Lake	$257 (240+24-6-1)
b.	Investment Revenue	$23 (24-1)
c.	Investing Cash Flows	$240

$6 million related to Cash dividends received is part of operating activities.