On January 4, 2021
On January 4, 2021, Runyan Bakery paid $334 million for 10 million shares of Lavery Labeling company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery’s operations. Runyan received dividends of $4.00 per share on December 15, 2021, and Lavery reported net income of $200 million for the year ended December 31, 2021. The market value of Lavery’s common stock at December 31, 2021, was $31 per share. On the purchase date, the book value of Lavery’s identifiable net assets was $850 million and:
a The fair value of Lavery’s depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 million.
b The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to
Required:
1.Prepare all appropriate journal entries related to the investment during 2021, assuming Runyan accounts for this investment by the equity method.
- Record the purchase of Lavery Labeling stock for $334 million.
- Record Runyan Bakery’s share of Lavery’s $200 million net income.
- Record the receipt of cash dividends of $4 per share on 10 million shares.
- Record any necessary entry related to
depreciation . The fair value of Lavery’s depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 - Record any necessary
adjusting entry to correctly report the investment on thebalance sheet . The market value of Lavery’s common stock at December 31, 2021 was $31 per share.
Required:
1.Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest.
Journal entry worksheet
- Record the purchase of Lavery Labeling stock for $334 million.
- Record Runyan Bakery’s share of Lavery’s $200 million net income.
- Record the receipt of cash dividends of $4 per share on 10 million shares.
- Record any necessary adjusting entry to correctly report the investment on the balance sheet. The market value of Lavery’s common stock at December 31, 2021 was $31 per share.
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