Paradise Inc. is a public company. On January 1, 2019, Paradise Inc. purchased 10,000 common shares (15%) of Sandals Inc. for $115,000 in cash. Sandals had common shares of $225,000 and retained earnings of $475,000 on this date. Paradise considered Sandals a FVTPL investment; as it did not give Paradise significant influence. On December 31, 2019 the Sandals shares were trading at $13.00 per share. On January 1, 2020, Paradise purchased an additional 25% of Sandals’ shares for $217,000 in cash. This second purchase allowed Paradise to exert significant influence over Sandals. The following information was available on the date of acquisition: Carrying Value Fair Value Assets not subject to depreciation $205,000 $205,000 Assets subject to depreciation (10 year useful life) 620,000 750,000 Patent (7 year useful life) - 35,000 Liabilities 115,000 115,000 Sandals depreciates assets using the straight-line method and has a 35% tax rate. During the two years, Sandals reported the following: Net Income Dividends Declared 2019 $275,000 $75,000 2020 $175,000 $115,000 Additional Information Sandals pays any dividends declared in cash on January 1 of the subsequent year. On December 31, 2020, an impairment test revealed that Paradise’s share of Sandals’ goodwill was impaired by $10,000. The 2020 net income included a loss from discontinued operations of $40,000 (net of tax). REQUIRED: Prepare all of Paradise’s journal entries for 2019 and 2020 related to Paradise’s investment in Sandals.
Paradise Inc. is a public company. On January 1, 2019, Paradise Inc. purchased 10,000 common shares (15%) of Sandals Inc. for $115,000 in cash. Sandals had common shares of $225,000 and
On January 1, 2020, Paradise purchased an additional 25% of Sandals’ shares for $217,000 in cash. This second purchase allowed Paradise to exert significant influence over Sandals. The following information was available on the date of acquisition:
Carrying Value Fair Value
Assets not subject to
Assets subject to depreciation (10 year useful life) 620,000 750,000
Patent (7 year useful life) - 35,000
Liabilities 115,000 115,000
Sandals depreciates assets using the straight-line method and has a 35% tax rate.
During the two years, Sandals reported the following:
Net Income Dividends Declared
2019 $275,000 $75,000
2020 $175,000 $115,000
Additional Information
Sandals pays any dividends declared in cash on January 1 of the subsequent year.
On December 31, 2020, an impairment test revealed that Paradise’s share of Sandals’
The 2020 net income included a loss from discontinued operations of $40,000 (net of tax).
REQUIRED:
Prepare all of Paradise’s
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