January 1, 2020, ABC Ltd. elects to make a long-term investment and purchases 5,000 shares of XY Company for $5.50 per share. This represents 25% of the voting shares and results in significant influence. The net income for XY Company in 2020 is $50,000. XY Company declared and paid $5,000 in dividends on December 31, 2020. In 2021, XY Company had an operating loss of $30,000 and no dividends were declared. In 2021, it was determined that goodwill was impaired by 20%. XY Company had the following assets and liabilities at cost and fair market value at January 1, 2020: Cost Market Cash 15,000 15,000 Accounts Receivable 10,000 10,000 Inventory 10,000 8,000 Capital Assets, net 100,000 130,000 135,000 163,000 Liabilities 69,500 69,500 Assume that the capital assets have 10 years of life remaining at January 1, 2020 and are amortized using the straight-line method. Required 1: Prepare a goodwill schedule (also known as a purchase price discrepancy schedule) for this investment.Include the year of acquisition and columns for the subsequent years. Required 2: Prepare all of the journal entries from January 1, 2020 to December 31, 2021. Required 3: What is the balance in the investment (asset) account at December 31, 2021?
January 1, 2020, ABC Ltd. elects to make a long-term investment and purchases 5,000 shares of XY Company for $5.50 per share. This represents 25% of the voting shares and results in significant influence. The net income for XY Company in 2020 is $50,000. XY Company declared and paid $5,000 in dividends on December 31, 2020. In 2021, XY Company had an operating loss of $30,000 and no dividends were declared. In 2021, it was determined that
XY Company had the following assets and liabilities at cost and fair market value at January 1, 2020:
| Cost | Market | |
| Cash | 15,000 | 15,000 |
| Accounts Receivable | 10,000 | 10,000 |
| Inventory | 10,000 | 8,000 |
| Capital Assets, net | 100,000 | 130,000 |
| 135,000 | 163,000 | |
| Liabilities | 69,500 | 69,500 |
Assume that the capital assets have 10 years of life remaining at January 1, 2020 and are amortized using the straight-line method.
Required 1: Prepare a goodwill schedule (also known as a purchase price discrepancy schedule) for this investment.Include the year of acquisition and columns for the subsequent years.
Required 2: Prepare all of the
Required 3: What is the balance in the investment (asset) account at December 31, 2021?
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