453 Midterm Question 1. (12 marks) On January 1, Year 3 Sun Co purchased 18,000 of the voting shares of Moon Inc. (120,000 voting shares outstanding) for $198.000. Management elected to use FVOCI. At December 31. Year 3, the shares of Moon were trading at $10.50 per share. On May 1, Year 4. Sun purchased additional 30,000 shares of Moon Inc. in the open market for $345,000. On May 1, Year 4. Moon's common shares were $900,000 and Retained Earnings were $300,000. Moon's carrying values equaled their fair market values on this date, except for a machine, which had a fair market value of $49,000 and a carrying value of $40,000. The machine had a useful life of three (3) years. In Year 4, there was a goodwill impairment loss equal to 10% of the goodwill created at acquisition date. Moon reported net income of $70,000 in Year 3 and $90,000 in Year 4. earned evenly over the year. Moon also declared and paid dividends of $20,000 on December 1, Year 3 and $30,000 on December 1, Year 4. In November of Year 4, Sun sold $100,000 inventory merchandise to Moon with a profit margin of 30% 55% of this merchandise was sold by the end of Year 4. Income Tax rate is 25%. Moon Inc. shares were trading for $10.75 per share at December 31, Year 4. Year end for both companies is December 31. Required: a) Prepare the journal entries for Year 3 and Year 4 b) Prepare the journal entry, if necessary, if the shares of Moon's shares were trading for $10.50 each at January 1, Year 5 and the decline was considered a permanent decline. If no journal entry is required, briefly explain why 453 Midterm Question 1. (12 marks) On January 1, Year 3 Sun Co purchased 18,000 of the voting shares of Moon Inc. (120,000 voting shares outstanding) for $198.000. Management elected to use FVOCI. At December 31. Year 3, the shares of Moon were trading at $10.50 per share. On May 1, Year 4. Sun purchased additional 30,000 shares of Moon Inc. in the open market for $345,000. On May 1, Year 4. Moon's common shares were $900,000 and Retained Earnings were $300,000. Moon's carrying values equaled their fair market values on this date, except for a machine, which had a fair market value of $49,000 and a carrying value of $40,000. The machine had a useful life of three (3) years. In Year 4, there was a goodwill impairment loss equal to 10% of the goodwill created at acquisition date. Moon reported net income of $70,000 in Year 3 and $90,000 in Year 4. earned evenly over the year. Moon also declared and paid dividends of $20,000 on December 1, Year 3 and $30,000 on December 1, Year 4. In November of Year 4, Sun sold $100,000 inventory merchandise to Moon with a profit margin of 30% 55% of this merchandise was sold by the end of Year 4. Income Tax rate is 25%. Moon Inc. shares were trading for $10.75 per share at December 31, Year 4. Year end for both companies is December 31. Required: a) Prepare the journal entries for Year 3 and Year 4 b) Prepare the journal entry, if necessary, if the shares of Moon's shares were trading for $10.50 each at January 1, Year 5 and the decline was considered a permanent decline. If no journal entry is required, briefly explain why