Equity Method Investment with Cost in Excess of Book Value Revco Corporation purchases 35 percent of the voting stock of Ronco Pharmaceuticals on January 1, 2022, for $15 million in cash. Ronco's book value at the date of acquisition is $10 million. Investigation reveals that Ronco's reported patents (10-year life) are undervalued by $2 million and it has unreported technology (5-year life) valued at $4 million. Ronco pays dividends of $300,000 and reports net income of $1,500,000 for 2022. Required Prepare the journal entries on Revco's books to report the above information assuming Revco accounts for its investment in Ronco using the equity method. Date Description Debit 01/01/22 12/31/22 ♦ + $ To record dividends reported by Ronco. + + Credit To record net income reported by Ronco. At what amount does Revco report the investment in Ronco on its December 31, 2022, balance sheet?
Equity Method Investment with Cost in Excess of Book Value Revco Corporation purchases 35 percent of the voting stock of Ronco Pharmaceuticals on January 1, 2022, for $15 million in cash. Ronco's book value at the date of acquisition is $10 million. Investigation reveals that Ronco's reported patents (10-year life) are undervalued by $2 million and it has unreported technology (5-year life) valued at $4 million. Ronco pays dividends of $300,000 and reports net income of $1,500,000 for 2022. Required Prepare the journal entries on Revco's books to report the above information assuming Revco accounts for its investment in Ronco using the equity method. Date Description Debit 01/01/22 12/31/22 ♦ + $ To record dividends reported by Ronco. + + Credit To record net income reported by Ronco. At what amount does Revco report the investment in Ronco on its December 31, 2022, balance sheet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Equity Method Investment with Cost in Excess of Book Value
Revco Corporation purchases 35 percent of the voting stock of Ronco Pharmaceuticals on January 1, 2022, for $15 million in cash. Ronco's book value at the date of acquisition is $10 million. Investigation reveals
that Ronco's reported patents (10-year life) are undervalued by $2 million and it has unreported technology (5-year life) valued at $4 million. Ronco pays dividends of $300,000 and reports net income of
$1,500,000 for 2022.
Required
Prepare the journal entries on Revco's books to report the above information assuming Revco accounts for its investment in Ronco using the equity method.
Date
Description
Debit
01/01/22
12/31/22
+
$
To record dividends reported by Ronco.
+
+
Credit
To record net income reported by Ronco.
At what amount does Revco report the investment in Ronco on its December 31, 2022, balance sheet?
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