Question

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2018, for $530 million. At the date of purchase, the book value of Vancouver's net assets was $840 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $10 million for the inventory and by $15 million for the plant facilities. The estimated useful life of the plant facilities is 12 years. All inventory acquired was sold during 2018. Vancouver reported net income of $150 milliorlfor the year ended December 31, 2018. Vancouver paid a cash dividend of $40 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2018. 2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018? 3. What amount should Northwest report in its balance sheet as its investment in Vancouver? 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver? Complete this question by entering your answers in the tabs below. Journal entry worksheet 2 4 5 Record the entry related to the purchase. Note: Enter debits before credits. Credit Debit General Journal Event View general journal Clear entry Record entry Journal entry worksheet 2 3 4 5 Record the entry related to the net income. Note: Enter debits before credits. Event General Journal Debit Credit 2 View general journal Clear entry Record entry Journal entry worksheet 2 4 Record the entry related to the dividends. Note: Enter debits before credits. Credit Debit General Journal Event View general journal Clear entry Record entry Journal entry worksheet 2 3 4 Record the entry related to the inventory adjustment. Note: Enter debits before credits. General Journal Debit Credit Event 4 View general journal Clear entry Record entry Journal entry worksheet 2 4 Record the entry related to the depreciation adjustment. Note: Enter debits before credits Debit Credit General Journal Event View general journal Record entry Clear entry Req 1 Req 2 and 3 Req 4 What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018 and in its balance sheet as its investment in Vancouver? (Enter your answer in millions rounded to 1 decimal place, (i.e., 5, 500,000 should be entered as 5.5).) million 2. Income Statement Amount 3. Balance Sheet Amount million 2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31 3. What amount should Northwest report in its balance sheet as its investment in Vancouver? 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver? Complete this question by entering your answers in the tabs below. Req 4 ed Req 1 Req 2 and 3ReaH What should Northwest report in its statement of cash flows regarding its investment in Vancouver? (Enter your answers irn millions. (i.e., 10,000,000 should be entered as 10).) million Operating cash flow Investing cash flow million Req 2 and 3 Req 4

Answer 1

Debit Credit Account Title & Explanation 17 18 19 20 21 Investment in Vancouver T & M Shares (Purchase) Investment in Vancouver T & M Shares (Net Income) Cash (40*40%) (Dividends) Investment Revenue (10*40%) (Inventory adjustment) Investment Revenue (15/12)*40% (Depreciation adjustment) Cash 60 Investment Revenue (150*40%) 60 23 24 25 26 27 16 Investment in Vancouver T & M Shares 16 29 30 31 32 4 Investment in Vancouver T & M Shares 4 0.5 Investment in Vancouver T & M Shares 0.5 35 36 37

39 2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018? Investment Revenue Debit 41 42 43 Explanation Credit Balance 60 Share of Income 4 0.5 Depreciation 55.5 45 46 3. What amount should Northwest report in its balance sheet as its investment in Vancouver? 47 Investment in Vancouver T & M Shares Balance 530 590 574 570 0.5 569.5 Credit Explanation Debit 49 50 51 52 53 54 Cost Share of Income Dividends nvento Depreciation 530 60 16 4 56 57 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver? $530 million will be shown as Cash Outflow in Investing Activities $16 million will be shown as Cash Inflow(dividends) in Operating Activities 59