Question

PROBLEM 1 (20 points) On January 1, 2018, G'Kar Company owns 40 percent (40,000 shares) of Lorien, Inc., which it purchased several years ago for $182,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2018, is $293,600. Excess patent cost amortization of $12,000 is still being recognized each year. During 2018, Lorien reports net income of $342,000 and a $120,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. G'Kar sold 8,000 shares of Lorien on August 1, 2018, for $93,000 in cash. However, G'Kar retains the ability to significantly influence the investee. Required: Prepare the following financial statements for G'Kar in good form for the year ended 2018 using the following summarized data for 2018 that the Assistant Controller gave you: Description Amount Sales $850,000 Cost of Goods Sold 300,000 Other Expenses 208,000 Dividends Paid 150,000 Retained Earnings, 1/1/18 234,000 a) Income statement for G'Kar Company. Please show calculations so that partial credit can be granted. b) Statement of comprehensive income for G'Kar Company. Please show calculations so that partial credit can be granted. c) Statement of retained earnings for G'Kar Company. Please show calculations so that partial credit can be granted.

Answer 1

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Investment sold for & 93000 Gain on sall of showns 5893000 - $587203 in cash at = $34280 Lorrien depoort net income of 8 342000 and it uncoor uwfoonly thoroughant the Yearr. By streeping equity method Company will encognize Sorien ine net encome in his encome startiment. G' Kerr confeny owns 32 10 shoons at the end of the years then net income will be recogwae un income statement es follows - 342000 x 320 $109,440

A Amount 300,000 Income statement of G'kan Comhany for the year ended 2018 Particulares Sales 850,000 O Cost of Goods sold 550,000 Gross Powf's do8,000 Other Expenses (~ Amortisation of Pertent |330,000 Operating income (t) Gain on sell of incestment 34,280 A Investment in Lovren, Inc. Wed income 12000 109,440 473,720 - Calculation of Gain on sale of investment Investment sold - 2000sharers Carrying value the on e January 1, 2018 7.34 [1 93600/10,000} Carnying value of 8000 shans och on Jan 1, 2018 - 58,720 8000 x 7.34

- Particulars Statement of Companhensive ancome for bikaner Company for the Year ended Amorint Med ancome $473,720 o Comportensive loss of Lorien, Inc ($12.0000 X 327? (38400) A Unrealized brain on investment 89,230 un lonien, Inc - Combouhengive 524,600 Calculation of Unerealized twin on Investment Purchase price of ur share 4.55/sharere ut of corrien, ane - a Carrying value on Per shan Income 7.34/ shoul on year end for 2.79/shary Gain / Shary » (1.34 - 1.583 No. of shows own year Unrealised Grain on investment 32000X279 ) No. of the end 32000 $ 84280

sinorant 234,000 9 Stortment of restained earning of G keer company for the year ended 2018 Particulary Retined Garning on 1st Jan 2018 (+) Ned income A Proposed elividend Referined cooning on 31st Dec 2018 No Dividend proposed during the 473,720 707420 - year,
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