On January 4 2018 Runyan Bakery paid 336 million for 10 mill

On January 4, 2018, Runyan Bakery paid $336 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery\'s operations. Runyan received dividends of $2.50 per share on December 15, 2018, and Lavery reported net income of $210 million for the year ended December 31, 2018. The market value of Lavery\'s common stock at December 31, 2018, was $32 per share On the purchase date, the book value of Lavery\'s net assets was $860 million and: a. The fair value of Lavery\'s depreciable assets, with an average remaining useful life of five years, exceeded their book value by $100 million. b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill Required 1. Prepare all appropriate journal entries related to the investment during 2018, assuming Runyan accounts for this investment by the equity method. 2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest. Complete this question by entering your answers in the tabs below Required 1 Required 2 Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest. If no entry is required for a transaction event, select Nojouma entry reqired in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).) View transaction list Journal entry worksheet 4 Record the purchase of Lavery Labeling stock for $336 million.

Solution

Journal Entry ( $in Million) S. No. Account Title Debit Credit 1 Investment in Lavery Labelling Shares $336.00 Cash $336.00 ( TO Record Purchase of Investment) 2 Investment in Lavery Labelling Shares $63.00 Investment Revenue ($210*30%) $63.00 ( To Record Share in net Income ) 3 Cash (10*$2.50) $25.00 Investment in Lavery Labelling Shares $25.00 ( to Record Dividend Received) 4 Investment Revenue ($100/5) $20.00 Investment in Lavery Labelling Shares $20.00 ( To Record Depreciation Adjustment) Journal Entry ( $in Million) S.No. Account Title Debit Credit 1 Investment in Lavery Labelling Shares $336.00 Cash $336.00 ( TO Record Purchase of Investment) 2 No Entry ( no Significant Influesnce) 3 Cash $25.00 Investment in Lavery Labelling Shares $25.00 ( to Record Dividend Received) 4 Net Unrealised Holding Gain and Loss $16.00 Fair Value adjustment ((10*32)-336) $16.00 To Record Loss due to decrease in Fair Value