Question

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Exercise 12-23 (Algo) Equilty method (LO12-6, 12-7] On January 1, 2021, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $400 million cash, giving Cameron the ability to exercise significant influence over Lake's operations. At the date of acquisition of the stock, Lake's net assets had a fair value of $700 million. Its book value was $600 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lake's net Income for the year ended December 31, 2021, was $200 million. During 2021, Lake declared and pald cash dividends of $30 million. The buildings have a remaining life of 10 years. Required: 1. Complete the table below and prepare all appropriate journal entries related to the Investment during 2021, assuming Cameron accounts for this Investment by the equity method. 2 Determine the amounts to be reported by Cameron. Complete this question by entering your answers in the tabs below. Required 1 Calculation Required 1 G Required 2 Complete the table below. (Enter your answers in millions, (ie. 10,000,000 should be entered as 10)). (s in millions) Investee Net Assets Ownership Interest Net Assets Purchased merece a Difference Attributable to: S 400 Cost Fair Value Lake Construction's assets Book Value Lake Construction's assets Years Adjustment Depreciation adjustment: Investment revenue 11 < Required 1 Calculation Required 1 GJ >

Answer 1

Please find below table useful to compute desired results: -

1 Millions Investee Net Assets 2 Cost 3 Fair Value Lake construction's Assets 700 4 Book Value Lake Construction's assets 600 5 Depreciation adjustment: 6 Investment Revenue 10 Ownership Interest |Net Assets Puchased Difference Attributable to 400 0.2 =B3*C3 =D2-D3 Goodwill 0.2 =B4*C4 Adjustment 10 =B6/C6 Years Transaction 1 8 9 10 11 General Journal Debit Credit Investment in Lake Construction =D2 Cash =C9 (to record the investment in Lake Construction Shares) Investment in Lake Construction =200*20% Investment in Cameron's 2021 Balance sheet (in millions) Total Cost Income Share Less: Dividends Less: Depreciation Adjustment Balance =C9 =C12 =D16 =D19 =G9+G10-GIl-G12 12 2 -C12 13 14 15 3 16 (record the investor's share of net income) Cash =30*20% Investment in Lake Construction =C15 (record the cash dividends) Investment Revenue =D6 Investment in Lake Construction =D6 (to record the adjustment for depreciation) Investment revenue in the income statement Income share Less: Depreciation adjustment Balance 17 =G10 G12 -G16-G17 =G9

End results would be as follows: -

10 400 А 1 Millions Investee Net Assets Ownership Interest | Net Assets Puchased | Difference | Attributable to 2 Cost 400 3 Fair Value Lake construction's Assets 700 140 260 Goodwill 4. Book Value Lake Construction's assets 600 120 20 Under valuation of Assets 5 Depreciation adjustment: Years Adjustment 6 Investment Revenue 10 1 7 8 Transaction General Journal Debit Credit Investment in Cameron's 2021 Balance sheet (in millions) 1 Investment in Lake Construction 400 Cash Income Share (to record the investment in Lake Construction Shares) Less: Dividends 2 Investment in Lake Construction Less: Depreciation Adjustment Investment revenue Balance 14 (record the investor's share of net income) 3 Cash Investment revenue in the income statement Investment in Lake Construction Income share (record the cash dividends) Less: Depreciation adjustment 4 Investment Revenue Balance Investment in Lake Construction | (to record the adjustment for depreciation) Investing activities in the statement of cash flows 400 40 bo von 400 o