Question

Problem 2 (30 points) On 1/1/20x1, Living Technologies Company purchased a 12% investment in the voting common stock of Home Solutions, Inc. for cash of S102.000. Home Solutions' common stock trades on a nationally recognized stock exchange and the fair value is readily determinable. At the time of Living Technologies' investment, Home Solution's book value was $850,000. With its 12% investment, Living Technologies Company did not retain significant influence over the financing and operating policies of Home Solutions. On 1/1/20x3, Living Technologies Company purchased an additional 13% of Home Solutions, Inc.'s outstanding voting common stock The cost of their additional investment is $120,000, which they paid in cash. With this additional investment, Living Technologies can exercise significant influence over the financing and operating policies of Home Solutions Relevant financial information for Home Solutions, Inc. is as follows: Additional Information Escal Younding PREPOXI PRIPOROPRIA Net income $20,000 $25,000 $30,000 Dividends declared $5,000 $60 S70 Fair value of Home Solutions not assets $900.000 $925.000 $75.00 Hook value of Home Solutions et assets 5865.000 5884.000 5207.00 Required: On 1/1/20x1, Living Technologies asks about the appropriate accounting for their investment in Home Solutions, Inc. Briefly, explain the accounting alternatives for their initial 12% investment and give your recommendation, based on the accounting rules, of the approach they should apply. In your explanation discuss the accounting for Home Solutions net income, dividends declared, and fair value of net assets. 3. Prepare Living Technologies journal entry related to their January 1, 20x1 investment in Home Solutions c. Prepare the journal entry (or entries) for Living Technologies share of dividends and income, as applicable, for fiscal year 20x1 and 20x2. Show the change in Living Technologies investment in Home Solutions from 1/1/20x1 to 1/1/20x3, before accounting for the additional investment. Prepare the journal entry for Living Technologies 1/1/20x3 additional investment in Home Solutions, Inc. E Show or explain how Living Technologies accounts for their share of Home Solutions' net income and dividends declared and paid for fiscal year 20x3. (Journal entries permitted but not required)