Required:
1. Determine the amount of goodwill, if any, that was included in Snoopy's purchase of Woodstock.
2. Prepare all appropriate journal entries related to the investment during for 2018 and 2019.
3. Prepare the entry to record the sale of the investment on January 1, 2020.
Homework Answers
Since there is significant influence, we use Equity Method.
1.
| Investment made in Woodstock | $ 4000,000 |
| Less: | |
| Book Value of Asset acauqired (6,800,000*40%) | 2720,000 |
| Land (500,000*40%) | 200,000 |
| Patents (200,000*40%) | 80,000 |
| Bldg (1000,000*40%) | 400,000 |
| Balance is Goodwill | 600,000 |
2.
| 2018 | ||
| Investment in Woodstock a/c Dr (150,000-25,000-100,000)*40% | 10,000 | |
| To Equity Income from Woodstock | 10,000 | |
| (equity income for the year) | ||
| Cash a/c Dr (50,000*40%) | 20,000 | |
| To Investment in Woodstock | 20,000 | |
| (Dividend Received) | ||
| 2019 | ||
| Investment in Woodstock a/c Dr (200,000-25,000-100,000)*40% | 30,000 | |
| To Equity Income from Woodstock | 30,000 | |
| (equity income for the year) | ||
| Cash a/c Dr (80,000*40%) | 32,000 | |
| To Investment in Woodstock | 32,000 | |
| (Dividend Received) |
3.
| 1/1/20 | ||
| Bank a/c Dr | 4150,000 | |
| To Investment in Woodstock | 3,988,000 | |
| To Gains on sale of Investment | 162,000 | |
| (Investment sold) |
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