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Q1) On January 4, 2009, Runyan Bakery paid $324 million for 10 million shares if Lavery Labeling Company common stock. Investment represents 30% interest in net assets of Lavery and gave Runyan the capability to exercise important influence over Lavery's operation. Runyan got dividends of $2.00 per share on December 15, 2009, and Lavery reported net income of $160 million for year ended December 31, 2009. Market value of Lavery's common stock at December 31, 2009, was $31 per share. On purchases date, book value of Lavery's net assets was $800 million and:

1. Fair value of Lavery's depreciable assets, with average remaining useful life of six years, exceeded their book value by $80 million.

2. Reminder of excess of the cost of investment over book value of net assets bought was attributable to goodwill.

problems:

1. Create all suitable journal entries related to investment during 2009, suppose Runyan accounts for this investment by equity method.

2. Create journal entries required by Runyan, suppose that 10 million shares represent 10% interest in net assets of Lavery rather than 30% interest.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918173

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