Exercise 12-22 (Algo) Equity method; adjustment for depreciation [LO12-6, 12-7] Fizer Pharmaceutical paid $85 million on January 2, 2024, for 5 million shares of Carne Cosmetics common stock. The investment represents a 20% interest in the net assets of Carne and gave Fizer the ability to exercise significant influence over Carne's operations. Fizer received dividends of $3 per share on December 21, 2024, and Carne reported net income of $35 million for the year ended December 31, 2024. The fair value of Carne's common stock at December 31, 2024, was $35.50 per share. • The book value of Carne's net assets was $210 million. • The fair value of Carne's depreciable assets exceeded their book value by $50 million. These assets had an average remaining useful life of ten years. • The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: Complete the table below and prepare the appropriate journal entries related to the investment during 2024.

Exercise 12-22 (Algo) Equity method; adjustment for depreciation [LO12-6, 12-7] Fizer Pharmaceutical paid $85 million on January 2, 2024, for 5 million shares of Carne Cosmetics common stock. The investment represents a 20% interest in the net assets of Carne and gave Fizer the ability to exercise significant influence over Carne's operations. Fizer received dividends of $3 per share on December 21, 2024, and Carne reported net income of $35 million for the year ended December 31, 2024. The fair value of Carne's common stock at December 31, 2024, was $35.50 per share. • The book value of Carne's net assets was $210 million. • The fair value of Carne's depreciable assets exceeded their book value by $50 million. These assets had an average remaining useful life of ten years. • The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: Complete the table below and prepare the appropriate journal entries related to the investment during 2024.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Bonus Question On 1/1/20x1, Palma Company acquires 25% investment in the voting common stock of Small Fish, Inc. for $50,000. Palma Company accounts for their investment using the equity method. 1) If, for fiscal year-end 20x1, Small Fish, Inc. incurs a net loss of $250,000, how should Palma Company account for their share of Small Fish, Inc.'s net loss? 2) Suppose for fiscal year-end 20x2, Small Fish, Inc. incurs a net loss of $125,000. How should Palma Company account for their share of Small Fish, Inc.'s net loss? 3) Lastly, assume that SmalI Fish, Inc. returns to profitability and generates $300,000 of net income for fiscal year- end 20x3. How should Palma Company account for their share of Small Fish, Inc.'s 20x3 net income? Assume that Palma Company does not pay dividends during fiscal years 20x1, 20x2, and 20x3. (For this question, you do not have to prepare journal entries. Instead, you can explain your answer and show the effect on Palma Company's investment account)
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Exercise 12-20 (Algo) Equity method; purchase; Investee Income; dividends [LO12-6] As a long-term investment at the beginning of the 2024 fiscal year, Florists International purchased 25% of Nursery Supplies Incorporated's 20 million shares for $61 million. The fair value and book value of the shares were the same at that time. During the year, Nursery Supplies earned net income of $44 million and distributed cash dividends of $1.40 per share. At the end of the year, the fair value of the shares is $57 million. Required: Prepare the appropriate journal entries from the purchase through the end of the year. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in millions, (i.e., 10,000,000 should be entered as 10). No 1 Transactions 1 Investment revenue Cash Answer is not complete. General Journal ** Debit 61,000,000 Credit 61,000,000
Situation 1 Pharoah Tables acquired 15% of the 4,800,000 shares of common stock of Robot Sofas at a total cost of $7.80 per share on April 1, 2025. On August 8, Robot Sofas declared and paid a $267,000 cash dividend. On December 31, Robot Sofas market price was $8.30 per share and the company reported net income of $625,000 for the year. Situation 2 On January 1, 2025, Coronado Company purchased 40% of Santos Corporation 525,000 outstanding shares of common stock at a total cost of $14 per share. On October 25, Santos declared and paid a cash dividend of $0.40 per share. On December 31, Santos reported a net income of $928,000 for the year and the market price of its common stock was $15 per share. Prepare all necessary journal entries in 2025 for both situations. (Credit account titles are automatically Indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries…
Problem 7: In January 2020, Golden Company invested in P900,000 equity securities representing 15% interest in Rings Company. Golden Company incurred transaction cost of P100,000. On December 31, 2020, this investment has a market value of P950,000. On July 1, 2021, Golden Company sold all the investments for P1,200,000. 7.1 What amount of gain on sale should Golden Company recognize in profit or loss assuming the security was classified as Investment at FVPL? 7.2 How much is the amount transferred to Retained earnings upon sale assuming the security was classified as Investment at FVOCI? 7.3 Prepare all the necessary journal entries.
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