Question

assets of Lavery rather than a 30% interest. P 12-11 Fair value option; equity method investments LO12-5 2, LO12-8 L [This problem is a variation of P 12-102 focusing on the fair value option.] On January 4, 2018, Runyan Bakery paid $324 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 $2.00 per share on December 15, 2018, and Lavery reported net income of $160 million for the year ended December 31, 2018. The market value of Lavery's common stock at December 31. 2018, was $31 per share. On the purchase date, the book value of Lavery's net assets was $800 million and: a. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill Required suming 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. P 12-12 Fair value option; equity method investments LO12-5 2, LO12-6 2, L012-7D, L012-8 pe here to search

Answer 1

Solution:

Journals entries

Account	Debit	Credit
Purchase Investment in lavery labeling shares	$324,000,000
Cash		$324,000, 000
Net income Investment in lavery labeling shares (30% of $160,000, 000)	$48,000, 000
Investment revenue		$48,000,000
Dividends Cash ($2×$10,000, 000)	$20,000, 000
Investment in lavery labeling shares		$20,000,000
Depreciation adjustment Investment revenue	$4,000, 000
Investment in lavery labeling shares		$4,000,000