Financial Accounting
Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter D, Problem 1RQ
To determine

Investment:

It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds.

To explain: why a company might invest in another company.

Expert Solution & Answer
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Explanation of Solution

The reasons for a company to invest in another company are as follows:

  • To receive the dividends, interest and gain from the increase in the value of their investment.
  • To temporarily invest the excess cash generated in seasonal industries. 
  • To create strategic alliances, entering into a new industry or to increase the market share.

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Consolidation after Several Years  On January 1, 2016, Adams Corporation acquired all of the stock of Baker Company. The fair value of Adams’ shares used in the exchange was $37,500,000. At the time of acquisition, the book value of Baker’s shareholders’ equity was $5,000,000, and the book value of Baker’s building (25-year life) exceeded its fair value by $1,000,000. From the date of acquisition to December 31, 2021, Baker had cumulative net income of $1,300,000. For 2022, Baker reported net income of $300,000. Adams uses the complete equity method to account for its investment in Baker. There is no goodwill impairment loss for the period 2016 through 2021, but there is impairment loss of $100,000 in 2022. Baker declared no dividends during the period 2016–2022.  Required  Prepare the working paper eliminating entries necessary to consolidate the financial statements of Adams and Baker at December 31, 2022. Enter numerical answers using all zeros (do not abbreviate in thousands or in…
Give me the answer in a clear organized table please. Thank you!
Give me the answer in a clear organized table please. Thank you!
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