Accounting for the Equity Investment When Price Exceeds Book Value Assume an investor purchases all of the stock of the investee in a stock purchase for $2,700. The investee's balance sheet on the date of purchase is as follows: $225 Accounts receivable $225 Mortgage payable Inventories Building Total assets a. 450 In this example, the amount paid (i.e., $2,700) is $450 greater than the book value of the net assets of the investee (i.e., $2,250). Assume the additional $450 of purchase price relates to an unrecognized patent held by the investee that has a remaining useful life of 10 years on the acquisition date. We also assume, subsequent to the purchase, the investee reports net income of $450 and pays $135 in dividends to the investor. Required a. Provide the journal entry to recognize the Equity Income by the investor. b. Provide the journal entry to record the receipt of the clividend. c. Provide the journal entry to record the amortization of the patent asset. C 1800 Stockholders' equity 2250 $2,475 Total liabilities and equicy $2,475 to record equity income) (to record the receipt of dividends) to record the amortization of the patentl Debit Credit
Accounting for the Equity Investment When Price Exceeds Book Value Assume an investor purchases all of the stock of the investee in a stock purchase for $2,700. The investee's balance sheet on the date of purchase is as follows: $225 Accounts receivable $225 Mortgage payable Inventories Building Total assets a. 450 In this example, the amount paid (i.e., $2,700) is $450 greater than the book value of the net assets of the investee (i.e., $2,250). Assume the additional $450 of purchase price relates to an unrecognized patent held by the investee that has a remaining useful life of 10 years on the acquisition date. We also assume, subsequent to the purchase, the investee reports net income of $450 and pays $135 in dividends to the investor. Required a. Provide the journal entry to recognize the Equity Income by the investor. b. Provide the journal entry to record the receipt of the clividend. c. Provide the journal entry to record the amortization of the patent asset. C 1800 Stockholders' equity 2250 $2,475 Total liabilities and equicy $2,475 to record equity income) (to record the receipt of dividends) to record the amortization of the patentl Debit Credit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The image is little unclear but data is readable thnx
Transcribed Image Text:Accounting for the Equity Investment When Price Exceeds Book Value
Assume an investor purchases all of the stock of the investee in a stock purchase for $2,700. The investee's balance sheet on the date of purchase is as follows:
$225
Accounts receivable $225 Mortgage payable
Inventories
450
Building
1800 Stockholders' equity
2250
Total assets
$2,475 Total liabilities and equity $2,475
In this example, the amount paid (i.e., $2,700) is $450 greater than the book value of the net assets of the investee (i.e., $2,250). Assume the additional $450 of purchase price relates to an unrecognized patent held by the investee that has a
remaining useful life of 10 years on the acquisition date. We also assume, subsequent to the purchase, the investee reports net income of $450 and pays $135 in dividends to the investor.
Required
a. Provide the journal entry to recognize the Equity Income by the investor.
b. Provide the journal entry to record the receipt of the clividend.
c. Provide the journal entry to record the amortization of the patent asset.
a.
C
to record equity income)
(to record the receipt of dividends)
to record the amortization of the patentl
Debit
Credit
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education