Northwest Paperboard Company a paper and allied products man

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2018, for $490 million At the date of purchase, the book value of Vancouver\'s net assets was $820 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $10 million for the inventory and by $15 million for the plant facilities The estimated useful life of the plant facilities is 12 years. All inventory acquired was sold during 2018. Vancouver reported net income of $230 million for the year ended December 31, 2018. Vancouver paid a cash dividend of $50 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2018. 2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018? 3. What amount should Northwest report in its balance sheet as its investment in Vancouver? 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver?

Solution

1.

2. Northwest should report $92.00 million( 40% of $230 million) as its income from investment in Vancouver.

3. Balance of Investment in Vanocver account will be $543.15 ($490 - $10 - $1.25 - $7.6 + $92 - $20)

4. Statement of cash flow of Northwest will show the following:

Under the investing activities

a. Investment in Vancouver - $490.00

b. dividend received $20.00

Northwest Paperboard Company
			(millions)
Date	Account Title	Debit	Credit
Jan.2, 2018	Investment in vancouver	490.00
	Cash		490.00
	(Investment made in Vancouver)
Dec.31,2018	Cost of goods sold	10.00
	Investment in vancouver		10.00
	(To write off the excess value paid for inventory)
	Amortization expense	1.25
	Investment in vancouver		1.25
	(Amortization of excess value paid for plant assets)
	Amortization expense	7.60
	Investment in vancouver		7.60
	(Amortization of payment made for goodwill)
	Investment in vancouver	92.00
	Equity income from Vancouver		92.00
	(40% interest in the net income of $230 million)
	Cash	20.00
	Investment in vancouver		20.00
	(Cash dividend received from Vancouver)