George Corporation acquired all of the stock of Johnson Corporation on January 2, 2022. The book value of the net assets of Johnson on that date was $100 million and the fa values of Johnson's identifiable net assets equaled the book values, except for previously unreported developed technology valued at $80 million. The fair market value of the shares issued by George Corporation was $800 million. The developed technology is straight-line amortized over 5 years. For the year ended December 31, 2022, Johnson reported net income of $70 million and declared and paid dividends of $20 million. Goodwill impairment for 2020 is $0 million. The developed technology is not impaired. George uses the complete equity method to account for its investment in Johnson on its own books.

George Corporation acquired all of the stock of Johnson Corporation on January 2, 2022. The book value of the net assets of Johnson on that date was $100 million and the fa values of Johnson's identifiable net assets equaled the book values, except for previously unreported developed technology valued at $80 million. The fair market value of the shares issued by George Corporation was $800 million. The developed technology is straight-line amortized over 5 years. For the year ended December 31, 2022, Johnson reported net income of $70 million and declared and paid dividends of $20 million. Goodwill impairment for 2020 is $0 million. The developed technology is not impaired. George uses the complete equity method to account for its investment in Johnson on its own books.

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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Question

Equity Method Accounting, First Year
George Corporation acquired all of the stock of Johnson Corporation on January 2, 2022. The book value of the net assets of Johnson on that date was $100 million and the fair
values of Johnson's identifiable net assets equaled the book values, except for previously unreported developed technology valued at $80 million. The fair market value of the
shares issued by George Corporation was $800 million. The developed technology is straight-line amortized over 5 years.
For the year ended December 31, 2022, Johnson reported net income of $70 million and declared and paid dividends of $20 million. Goodwill impairment for 2020 is $0
million. The developed technology is not impaired. George uses the complete equity method to account for its investment in Johnson on its own books.
Required
a. Calculate 2022 equity in net income of Johnson, reported on George's books.
$ 54
million
b. Prepare journal entries to record George's acquisition of Johnson and subsequent entries to the investment account for 2022. What is the December 31, 2022,
investment balance, reported on George's books?
Enter your answers below in millions.
Description
Investment in Johnson
Capital stock
To record acquistion of Johnson.
Investment in Johnson
Equity in net income of Johnson
To record equity in net income.
Cash
Investment in Johnson
To record dividends received.
♦
Debit
80 x
0
54 ✔
0
20
0
>
Credit
0
80 x
0
54
0
20✔

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