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On January 1, 2023, Reddy Company purchased 20 percent (40,000 shares) of Raich Corporation for $280,000. The balance sheet of Raich Corporation on the acquisition contained the following information: § Assets subject to depreciation (use straight-line over 8 years) $500,000 § Assets not subject to depreciation $150,000 § Liabilities $ 70,000 The assets subject to depreciation have a market value of $540,000. The book values of the other assets and liabilities equal their market values. Both companies have December 31 year-ends. REQUIRED: a) Prepare the required journal entries using the fair value through net income method for the following events: • Acquisition (if applicable, also compute the amount of goodwill acquired). Net income earned by Raich Corporation during 2023 of $28,000. Additional depreciation expense. The price of Raich Corporation stock declined to $5 per share at the end of 2023. A cash dividend of $0.25 per share paid on August 3, 2023 b) Prepare the required journal entries using the equity method for the same events listed above.

On January 1, 2023, Reddy Company purchased 20 percent (40,000 shares) of Raich Corporation for $280,000. The balance sheet of Raich Corporation on the acquisition contained the following information: § Assets subject to depreciation (use straight-line over 8 years) $500,000 § Assets not subject to depreciation $150,000 § Liabilities $ 70,000 The assets subject to depreciation have a market value of $540,000. The book values of the other assets and liabilities equal their market values. Both companies have December 31 year-ends. REQUIRED: a) Prepare the required journal entries using the fair value through net income method for the following events: • Acquisition (if applicable, also compute the amount of goodwill acquired). Net income earned by Raich Corporation during 2023 of $28,000. Additional depreciation expense. The price of Raich Corporation stock declined to $5 per share at the end of 2023. A cash dividend of $0.25 per share paid on August 3, 2023 b) Prepare the required journal entries using the equity method for the same events listed above.

FINANCIAL ACCOUNTING
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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am. 14.

On January 1, 2023, Reddy Company purchased 20 percent (40,000 shares) of Raich Corporation for $280,000. The balance sheet of Raich Corporation on the acquisition contained the following information: § Assets subject to depreciation (use straight - line over 8 years) $500,000 § Assets not subject to depreciation $150,000 § Liabilities $ 70,000 The assets subject to depreciation have a market value of $540,000. The book values of the other assets and liabilities equal their market values. Both companies have December 31 year - ends. REQUIRED: a) Prepare the required journal entries using the fair value through net income method for the following events: • Acquisition (if applicable, also compute the amount of goodwill acquired). Net income earned by Raich Corporation during 2023 of $28,000. Additional depreciation expense. The price of Raich Corporation stock declined to $5 per share at the end of 2023. A cash dividend of $0.25 per share paid on August 3, 2023 b) Prepare the required journal entries using the equity method for the same events listed above.
Transcribed Image Text:On January 1, 2023, Reddy Company purchased 20 percent (40,000 shares) of Raich Corporation for $280,000. The balance sheet of Raich Corporation on the acquisition contained the following information: § Assets subject to depreciation (use straight - line over 8 years) $500,000 § Assets not subject to depreciation $150,000 § Liabilities $ 70,000 The assets subject to depreciation have a market value of $540,000. The book values of the other assets and liabilities equal their market values. Both companies have December 31 year - ends. REQUIRED: a) Prepare the required journal entries using the fair value through net income method for the following events: • Acquisition (if applicable, also compute the amount of goodwill acquired). Net income earned by Raich Corporation during 2023 of $28,000. Additional depreciation expense. The price of Raich Corporation stock declined to $5 per share at the end of 2023. A cash dividend of $0.25 per share paid on August 3, 2023 b) Prepare the required journal entries using the equity method for the same events listed above.
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