On July 1, 2016, Gupta Corporation bought 25% of the outstanding common stock of VB Company for $100 million cash. At the date of acquisition of the stock, VB’s net assets had a total fair value of $350 million and a book value of $220 million. Of the $130 million difference, $20 million was attributable to the appreciated value of inventory that was sold during the last half of 2016, $80 million was attributable to buildings that had a remaining depreciable life of 10 years, and $30 million related to equipment that had a remaining depreciable life of 5 years. Between July 1, 2016, and December 31, 2016, VB earned net income of $32 million and declared and paid cash dividends of $24 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2016, assuming Gupta accounts for this investment by the equity method. 2. Determine the amounts to be reported by Gupta: a. As an investment in Gupta’s December 31, 2016, balance sheet. b. As investment revenue or loss in Gupta’s 2016 income statement. c. Among investing activities in Gupta’s 2016 statement of cash flows.
On July 1, 2016, Gupta Corporation bought 25% of the outstanding common stock of VB Company for $100 million cash. At the date of acquisition of the stock, VB’s net assets had a total fair value of $350 million and a book value of $220 million. Of the $130 million difference, $20 million was attributable to the appreciated value of inventory that was sold during the last half of 2016, $80 million was attributable to buildings that had a remaining
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