Question
At December 31, 2019, Fright Limited (Fright) owned 75,000 common shares of Scare Company (Scare) when the shareholders equity of Scare was as follows: Common
At December 31, 2019, Fright Limited (Fright) owned 75,000 common shares of Scare Company (Scare) when the shareholders equity of Scare was as follows:
Common shares (100,000 no par value shares issued and outstanding) | $ 4,000,000 |
Retained earnings | 2,600,000 |
| $6,600,000 |
The unamortized acquisition differential at December 31, 2019, was as follows:
Trademarks net (remaining useful life of 15 years) | $135,000 |
Goodwill | 380,000 |
| $515,000 |
On January 1, 2020, Fright sold 15,000 common shares of Scare to an unrelated party for $720,000. Scares statement of retained earnings for 2020 was as follows:
Retained earnings, January 1, 2020 | $ 2,600,000 |
Net income | 1,800,000 |
Dividends | (400,000) |
Retained earnings, December 31, 2020 | $ 4,000,000 |
On January 1, 2021, Fright sold 18,000 common shares of Scare to an unrelated party for proceeds of $1,728,000.
Additional Information
- Fright uses the equity method to record its investment in Scare for its separate entity financial statements.
- There was no impairment of goodwill in 2019 or 2020.
- There were no unrealized profits from intercompany transactions since the date of acquisition.
REQUIRED: (19 MARKS)
- Calculate the balance in the Investment in Scare account as at December 31, 2019.
- Prepare all relevant journal entries relating to Frights investment in Scare for 2020.
- Calculate the balance in Investment in Scare account as at December 31, 2020.
- Prepare the journal entries to record the sale and revaluation of the common shares on January 1, 2021.
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