Question

Problem 2 (30 points) On 1/1/20x1, Living Technologies Company purchased a 12% investment in the voting common stock of Home Solutions, Inc. for cash of S102,000 Home Solutions' common stock trades on a nationally recognized stock exchange and the fair value is readily determinable. At the time of Living Technologies' investment, Home Solution's book value was $850,000 With its 12% investment, Living Technologies Company did not retain significant influence over the financing and operating policies of Home Solutions On 1/1/20x3, Living Technologies Company purchased an additional 13% of Home Solutions, Inc.'s outstanding voting common stock The cost of their additional investment is $120,000, which they paid in cash. With this additional investment, Living Technologies can exercise significant influence over the financing and operating policies of Home Solutions Relevant financial information for Home Solutions, Inc, is as follows: Additional Infomation Eiscal Year-ending 1R3120x1 123120123120 $25,000 $6,000 S00,000 S925.000 5975.000 $884,000 $20,000 S5,000 $30,000 S7000 Net income Dividends declared Fair value of Home Solutions net asscts Book value of Home Solutions net assets $865,000 5907,000 Required A On 1/1/20x1, Living Technologies asks about the appropriate accounting for their investment in Home Solutions, Inc. Briefly, explain the accounting alternatives for their initial 12 % investment and give your recommendation, based on the accounting rules, of the approach they should apply. In your explanation discuss the accounting for Home Solutions net income, dividends declared, and fair value of net assets B. Prepare Living Technologies journal entry related to their January 1, 20x1 investment in Home Solutions. c. Prepare the journal entry (or entries) for Living Technologies share of dividends and income, as applicable, for fiscal year 20x1 and 20x2 D. Show the change in Living Technologies investment in Home Solutions from 1/1/20x1 to 1/1/20x3, before accounting for the additional investment E Prepare the journal entry for Living Technologies 1/1/20x3 additional investment in Home Solutions, Inc. F. Show or explain how Living Technologies accounts for their share of Home Solutions' net income and dividends declared and paid for fiscal year 20x3. (Journal entries permitted but not required)

Answer 1

solution Given data on 0/1/2009 Living tecnologies have 12% investment in Home solution. living techology did not setaun significant influence over she financing and operating policies of Home solutions. investment for 120% living tecnologies will recold this as a follows som --) Toading seludity:- Living Tecnologies want to sell its investment in the short team for a profit the investment is classified as a trading investment. - Investment will be recorded at cash. - the end of cash subsquent year adjustment will be made for its faily value - en realised Profit and gain are to be recooded - in operating income.

- Available for sale oppe.bach - the end of coach subsequent years adsestment will be made for its fair values as soon Rochano -> unde alised gain to be recorded in other comprehantive income until they have been sold. - investment is nitially recorded - Top Stories Journal Entries. $ 102000 il2001 Investment account of TO cash $ 102000 [Bring investment made in Home solutions and for $ 600 $600 1?137an cash 12/31/2017 account of - To invest ment Being Dividends dedased con investment 7 L 12/31/2002 cash account $720 To investment $790 I Being Dividends declared I on investment]

12001 Home solution's book values $850,000 Living Technologies compry Investment > 1297. $850,000X-12%. $102000 Being investment made in Home solution for cash) 12/31/2001 : Dividend dedaded = $5000 , 5000 x-12% et Being Dividend dedased on investment] 12/31/2002 - Dividend declared =$6000 z 6000X +2% 720. a) Their will be no adjustment in the books of living Technologies company for net incomes Book value and fair value of assets.

- Living Technologies investment in change in Home solutions from 1/1/200 to 1/1/2013 200) 2002 $107000 2003 $102000 Invest ment $103000 3) Their will be no change in investment value if fair market value of Stack has been given in question that adjustment have been made in investment Account. - too 1/1/2003 Journal Entries for Living Technologies additional investment in Home solution. Equity method investment account of $120.000 TO cash Bring addition investment of 13% mode in Hoheits corporation becood to Equity invest ment] $ 120,000 215/2003 $7500 Equity method investment account 80 to eruity method income Being Bynet income of Home solutions investment value incoeuged $7500

12/31) 2003 $ 2100 cash al or TO Equity methoa invetment Being Divident received and value of investment has been reduced $ 2100 Equity method investment Goring value antiotal investment Lost ( shape of net income 67 Divident Decerved $ 222000 7500 2100 $227400