Chapter 1 Problem 11-16
Requirement a
1. Memo – Received 500 shares as 10% stock dividend on
5,000 original Dale ordinary shares. Shares now
held, 5,500.
2. Cash (5,500 x 20) 110,000
Dividend income 110,000
3. Stock rights (15/150 x 1,600,000) 160,000
Investment in equity securities – Ever 160,000
Cash 200,000
Stock rights 160,000
Gain on sale of stock rights 40,000
4. Investment in associate 5,000,000
Cash 5,000,000
1/1/2007 1/1/2008
Acquisition cost 2,000,000 5,000,000
Net assets acquired:
10% x 16,000,000 1,600,000
20% x 20,000,000 ________ 4,000,000
Goodwill 400,000 1,000,000
Income from Fox investment in 2007 (10% x 4,000,000) 400,000
Less: Dividend income recorded in 2007 – cost method -___
Understatement of income 400,000
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5. Investment in associate 2,000,000
Investment in equity securities 2,000,000
(Reclassification)
6. Investment in associate 400,000
Retained earnings 400,000
7. Investment in associate 1,800,000
Investment income (30% x 6,000,000) 1,800,000
8. Cash (75,000 x 20) 1,500,000
Investment in associate 1,500,000
Requirement b
Noncurrent assets:
Investment in equity securities (Note) 2,690,000
Investment in associate – Fox Corporation 7,700,000
Note – Investment in equity securities
Dale Corporation, 5,500 shares 1,250,000
Ever Corporation, 10,000 shares 1,440,000
Total cost 2,690,000
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