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 goodwill. Required:1.Prepare all appropriate journal entries related to the investment during 2021, assuming Runyan accounts for this investment by the equity method. Journal entry worksheetRecord 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 $90Record 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. 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 worksheetRecord 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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Answered: On January 4, 2021

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

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 goodwill.

Required:

1.Prepare all appropriate journal entries related to the investment during 2021, assuming Runyan accounts for this investment by the equity method.

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 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 the balance 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.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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