Question

On January 4, 2018, Runyan Bakery paid $334 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 received dividends of $4.00 per share on December 15, 2018, and Lavery reported net income of $200 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 $850 million and: a. The fair value of Lavery's depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 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: 1. Prepare all appropriate journal entries related to the investment during 2018, assuming Runyan accounts for this investment by the equity method. 2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest.

Answer 1

2018 January Particulars Investment in Lovery Labeling Company pg Cash arc Debit $334 million - Credit $334 million $40 million • $4*10 million shares = $40 million | December I Cash Investment in Lavery Labeling company • $200 million * 30% = $60 million December Investment in Lavery Labeling $ 60 million Company Investment Revenue |$40 million 31 $60 million a. Ang I 2018 January $334 million December Dividend Income 15 ] Particulars Debit Credit Trading securities $334 million Cash alc • $4*10 million shares = $40 million $40 million Cash 1 $ 40 million • $31 Per share * 10 million shares =$310 million) - $334 million = $94 million Trading securities 1 $24 million unrealized Loss on trading $24 million Investment December L 31