Question

On January 4, 2021, Runyan Bakery paid $328 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.50 per share on December 15, 2021, and Lavery reported net income of $170 million for the year ended December 31, 2021. The market value of Lavery's common stock at December 31, 2021, was $31 per share. On the purchase date, the book value of Lavery’s identifiable net assets was $820 million and:

1. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $60 million.
2. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Required:
Assuming Runyan accounts for this investment under the fair value option, prepare all appropriate journal entries in a manner similar to accounting for securities for which there is not significant influence. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)

Record the purchase of Lavery Labeling stock for $328 million.

Record Runyan Bakery's share of Lavery's $170 million net income.

Record the receipt of cash dividends of $2.5 per share on 10 million shares.

Record any necessary adjusting entry to correctly report the investment on the balance sheet. The market value of Lavery's common stock at December 31, 2021 was $31 per share.

Answer 1

Ansver Poge No O Asuming Runyan accounts foo the Frivefment under dhe fain value opion, jowinal enhies are follouos . as equity invefment made TO $328miler Inverfment in Ronyan bahory shares = lomilion shar es x. lo million = 10,000,000 anes x 32.8 $ 38,000,000 $ 328 million To record dividends ohare 10,000,000 khan ts x 5 per విక్, 000,00 Dividend revenue * 25 million > To vecord dhe adjurf fain value Nat wmcalized holding gaíns q lonser - (43a8 - 43)x lomtilim (43.2-8-$3)x 1omillion shares 1.8 X.10,000,00 0 (8,000, 000 f18 million

Pageino NO In this we should not Considen changes in beok value of asets in adjordment, a we Considu the maiket value of shane at gear end. share end fair value at $ 31 per year Đate Debit (mil Gedit (milin) Account tille S.NO Invesfment in Ronyan kakoy shares $ 328 Jan 4 carh $ 328 No entiy i orequined Because here 2 dec 31 enhilg has no significant influence ovenoiki conh $ 25 dec 15 Dividend orevenue $ 25 dec 31 Net unirealized holding ns and $18 1omes $ 18 fain value adjonfment