On January 1, 2016, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $300 million cash. At the date of acquisition of the stock, Lake’s net assets had a fair value of $900 million. Their book value was $800 million. The difference was attributable to the fair value of Lake’s buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2016, was $150 million. During 2016, Lake declared and paid cash dividends of $30 million. The buildings have a remaining life of 10 years. Required: 1. Prepare all appropriate journal entries related to the investment during 2016, assuming Cameron accounts for this investment by the equity method. 2. Determine the amounts to be reported by Cameron: a. As an investment in Cameron’s 2016 balance sheet. b. As investment revenue in the income statement. c. Among investing activities in the statement of cash flows.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2016, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $300 million cash. At the date of acquisition of the stock, Lake’s net assets had a fair value of $900 million. Their book value was $800 million. The difference was attributable to the fair value of Lake’s buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2016, was $150 million. During 2016, Lake declared and paid cash dividends of $30 million. The buildings have a remaining life of 10 years. Required: 1. Prepare all appropriate journal entries related to the investment during 2016, assuming Cameron accounts for this investment by the equity method. 2. Determine the amounts to be reported by Cameron: a. As an investment in Cameron’s 2016 balance sheet. b. As investment revenue in the income statement. c. Among investing activities in the statement of cash flows.

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