Please answer this question Exercise 3 LO 5 Net investment u

Please answer this question

Exercise 3 (LO 5) Net investment under the sophisticated equity method. On June 30, 2015, the shareholders\' equity of Fabinet, a foreign corporation, was 10,500,000 FC. At that time, Newcore, a US. corporation, acquired 40% in Fabinet by paying $3,120,000 when 1 FC was equal to $0.60. Equipment, with a fair market value that exceeded cost by $240,000, accounted for a portion of the cost in excess of book value. The equipment was expected to have a remaining useful life of 10 years and be depreciated using the straight-line method. The balance of the cost in excess of book value was traceable to goodwill. During the last six months of 2015, Fabinet reported net income of 1,260,000 FC of which 126,000 FC was declared and paid as a dividend. At the end of 2015, Newcore tested the good- will for impairment and recognized an impairment loss of $100,000. Additional exchange rates are as follows: 1 FC = $0.64 1 FC = 0.66 1 FC = 0.68 Weighted average for last six months of 2015...... . . . . .. Prepare all relevant entries to record Newcore\'s interest in Fabinet under the sophisticated equity method.

Solution

NEWCORE Journal entries to record the interest in Fabinet (in US $) Date Account Title Debit Credit June 30, 2015 Investment in Fabinet 3120000 Cash 3120000 (Entry to record acquisiton of 40% interest in Fabinet) Dec. 30,2015 Loss due to impairment of goodwill 100000 Investment in Fabinet 100000 (To record impairment of goodwill ) Amortization Expese 24000 Investment in Fabinet 24000 (To record amortization of excess fair value over 10 years) Investment in Fabinet 322560 Equity income from Fabinet 322560 (To record share of net income in Fabinet) Cash 33264 Investment in Fabinet 33264 (To record dividend received from Fabinet) Workings: 1. Calculation of goodwill at acquisition Equity of Fabiet as at June 30, 2015 A FC 10,500,000 Exchange rate                              1 FC = B $0.60 Equity of Fabinet in US $ (A x B) C 6300000 40% interest (40% of C) D 2520000 Excess of fair value of equipment E 240000 Total value acquired (D + E) F 2760000 Price paid G 3120000 Goodwill on acquisition H 360000 2. Equity income and dividend Income of Fabinet for the last six months A FC   1,260,000 Weighted average exchange rate for the six months 1 FC = B $0.64 Income of Fabinet for the last six months in US $ (A X B) C 806400 Share of Newcore (40%) D 322560 Dividend declared and paid A FC   126,000 Exchange rate at the date of declaration of dividend 1 FC = B $0.66 Dividend declared by Fabinet in US $ (A X B) C 83160 Share of Newcore (40%) D 33264