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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: need part d, e, f answered

A: Income tax expense for the year is calculated by adjusting deferred tax liability and deferred tax…

Q: For what values of x is f(x) NOI differentidue:

A: At x=1 the given function is NOT DIFFERENTIABLE. Because, at x=1 the value of the function is…

Q: Need help for part C an D

A: In case of realisation of assets, outsider liabilities have first right on such realisation , such…

Q: You didnt answer the question 4, 5 , 6

A: Under or Overapplied Overhead: When real manufacturing overhead expenses exceed allocated…

Q: WHat ia 2 plus 2

A: Answer:

Q: to a. Accrued Salaries Expense, $800. . Depreciation was recorded on the truck using the…

A: JOURNAL In the books of Murphy Delivery Service Date Particular L.F. Debit (in $)…

Q: 4. (LO 3) A synonym for faithful representation is accuracy

A: Faithful representation in the context of accounting is "true and fair view." This term is often…

Q: C, D, E

A: c. Receipt of cash from clients for current month means the service revenue belongs to this month…

Q: What is the NAV?

A: NAV full form is net asset value The detailed explanation is explained in step 2

Q: CAPITAL BUDGETING AND CASH FLOW ESTIMATION Allied Food Products is considering expanding into the…

A: 1) If the company uses debt in its capital structure and if some of these debt is used to finance…

Q: Zina Manufacturing Company started and completed Job 501 in December with the following Job Cost…

A: Job costing means where actual direct cost is included in specific cost and overhead is applied on…

Q: Selected Stock Transactions The following selected accounts appear in the ledger of Parks…

A: The cash dividend is part of the corporation's current earnings or accumulated profits which is…

Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

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?

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!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction to Journal Entry

VIEW

Step 2: Calculation of equity in net income of Ronco

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

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.

Similar questions

Please Do not Give solution in images format
Equity Method Investment On January 1, 2022, Ace Beverages purchases 40 percent of the stock of an organic sports drink company, Sporty Inc., at a cost of $2,600,000 when Sporty's book value was $5,200,000. Ace has a significant influence over Sporty's operating and financial decisions. The excess of investment cost over book value is attributed entirely to goodwill, and there are no intercompany transactions between the two companies. Sporty reports the following income and dividends for 2022 through 2025: 2022 2023 Income (Loss) Dividends $260,000 $13,000 (104,000) 65,000 208,000 2024 2025 5.200 52,000 Required a. Calculate the basis difference that is attributed to goodwill. $ 520,000 b. Calculate the investment balance, reported on Ace's December 31, 2025, balance sheet. $ 2,847,120 66 E R 5 MacBook Air 6 X G 7 H K Next
Subject: acounting
Parker Company acquires an 80% interest in Sargent Company for $300,000 in cash on January 1, 2015, when Sargent Company has the following balance sheet: (attached)The excess of the price paid over book value is attributable to the fixed assets, which have a fair value of $250,000, and to goodwill. The fixed assets have a 10-year remaining life. Parker Company uses the simple equity method to record its investment in Sargent Company. The following trial balances of the two companies are prepared on December 31, 2015: Parker Sargent Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 10,000 130,000 Depreciable Fixed A . . . . . . . . . . . . . . . . . . 400,000 200,000 Accumulated Depreciation . . . .. . . . . . . (106,000) (20,000) Investment in Sargent . .. .. . . . . . . . . . . . . 316,000 Current Liabilities. . . . . . . . . . . . . . . . . . . . . (60,000)…
Step Acquisition: Press Company acquires 15 percent of Secretary Company's common stock for P600,000 cash and carries the investment using the cost model. A few months later, Press purchases another 60 percent of Secretary Company's stock for P2,592,000. At that date, Secretary Company reports identifiable assets with a book value of P4,680,000 and a fair value of P6,120,000, and it has liabilities with a book value and fair value of P2,280,000. The fair value of the 25% non-controlling interest in Secretary Company is P1,080,000.Determine the following (at full fair value)GoodwillNon-Controlling Interest (NCI)
Don't give answer in image format
Parker Company acquires an 80% interest in Sargent Company for $300,000 on January 1, 2015, when Sargent Company has the following balance sheet: (See image) The excess of the price paid over book value is attributable to the fixed assets, which have afair value of $250,000, and to goodwill. The fixed assets have a 10-year remaining life. Parkeruses the sophisticated equity method to record the investment in Sargent Company. The trial balances of Parker and Sargent companies for December 31, 2016, are presented as follows: (see image) Parker Company continues to use the sophisticated equity method. Required:1. Prepare all the eliminations and adjustments that would be made on the 2016 consolidatedworksheet.
es On January 1, 2024, Pine Company owns 40 percent (44,000 shares) of Seacrest, Incorporated, which it purchased several years ago for $211,200. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2024, is $283,800. Excess patent cost amortization of $13,200 is still being recognized each year. During 2024, Seacrest reports net income of $366,000 and a $132,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 8,800 shares of Seacrest on August 1, 2024, for $105,336 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2023, Pine sold $51,000 in inventory (which it had originally purchased for only $30,600) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $11,900 (at sales price) of this merchandise, which was subsequently sold in the first…
A-1
On January 1, 2015, Bell Company acquires an 80% interest in Carter Company for $140,000. The purchase price results in a $30,000 (including NCI adjustment) increase in the patent which has a 10-year life.The investment is recorded under the simple equity method.On January 1, 2017, Ace Company purchases a 60% interest in Bell Company for $420,000. Ace Company believes that the patent value remaining on the investment by Bell in Carter is stated correctly. Comparative equities of Bell Company and Carter Company immediately prior to the purchase reveal the following:Stockholders’ Equity Bell Company Carter CompanyCommon stock ($5 par). . . . . . . . . . . . . . . . . $200,000Common stock ($10 par). . . . . . . . . . . . . . . $100,000Paid-in capital in excess of par . . . . . . . . . . . 100,000 20,000Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 150,000 80,000Total…
Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2015. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2015, Sea-Breeze had the following assets and liabilities:The companies’ financial statements for the year ending December 31, 2018, follow:Answer the following questions:a. How can the accountant determine that the parent has applied the initial value method?b. What is the annual excess amortization initially recognized in connection with this acquisition?c. If the parent had applied the equity method, what investment income would the parent have recorded in 2018?d. What amount should the parent report as retained earnings in its January 1, 2018, consolidated balance sheet?e. What is consolidated net income for 2018 and what amounts are attributable to the controlling and noncontrolling interests?f. Within consolidated statements at January 1,…
Prepare schedules for acquisition-date fair-value allocations and amortizations for Adams’s investment in Barstow.