(1) | Journal Entry to record original investment | |||||
Account Titles | Debit | Credit | ||||
Equity Method Investment in Common Stock of Melody Corporation | 450,000 | |||||
Cash | 450,000 | |||||
(2) | Calculation of Goodwill: | |||||
Purchase Consideration | 450,000 | |||||
Add: Non-Controlling Interest | 1,215,000 | |||||
( 1,620,000 x 75% ) | ||||||
Less: Net assets | 1,620,000 | |||||
Book Value | 1,500,000 | |||||
Add: Fair Value in excess of Book value | ||||||
Machinery | 100,000 | |||||
Inventory | 20,000 | |||||
Goodwill | 45,000 | |||||
(3) | Necessary Journal Entries | |||||
Account Titles | Debit | Credit | ||||
Cash | 12,500 | |||||
Equity Method Investment in Common Stock of Melody Corporation | 12,500 | |||||
(50,000 x 25% ) | ||||||
Equity Method Investment in Common Stock of Melody Corporation | 50,000 | |||||
Earning from Equity Method Investment | 50,000 | |||||
(200,000 x 25% ) | ||||||
Earning from Equity Method Investment | 30,000 | |||||
Equity Method Investment in Common Stock of Melody Corporation | 30,000 | |||||
(100,000 / 10 ) + 20,000 | ||||||
(Annual amortization of machinery & Inventory sold ) | ||||||
(4) | Account Titles | Debit | Credit | |||
Cash | 220,000 | |||||
Equity Method Investment in Common Stock of Melody Corporation | 180,000 | |||||
(450,000 x 40% ) | ||||||
Gain on sale of Equity Method Investment | 40,000 | |||||
(5) | Account Titles | Debit | Credit | |||
Cash | 6,000 | |||||
Dividend Revenue | 6,000 | |||||
(40,000 x 15% ) | ||||||
Fair Value adjustment-Stock Investment | 30,000 | |||||
Unrealized gain | 30,000 | |||||
( 60,000 x 5 ) - (450,000 x 60% ) | ||||||
* After selling 40% of Equity investment , remaining 15% ( 25 x 60% ) will be treated as Stock Investment. | ||||||
Problem 4 (20 pts) On January 1, 2020, Jordan Inc. purchased 25% of the outstanding common...
Problem 4 (20 pts) On January 1, 2020, Jordan Inc. purchased 30% of the outstanding common stock of Melody Corporation at a cost of $600,000. Melody Corporation had 800,000 shares of common stock outstanding. At the date of purchase, the book value of Melody's net assets was $1,500,000. Book value and fair value of net assets were the same for all balance sheet items except for machinery and inventory. The fair value exceeded the book value by $200,000 for machinery...
On January 1, 2020, Jordan Inc. purchased 25% of the outstanding common stock of Melody Corporation at a cost of $450,000. Melody Corporation had 400,000 shares of common stock outstanding. At the date of purchase, the book value of Melody’s net assets was $1,500,000. Book value and fair value of net assets were the same for all balance sheet items except for machinery and inventory. The fair value exceeded the book value by $100,000 for machinery and $20,000 for the...
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