Brown purchases 30% of Orange Company on Jan. 1, 2016 for $300,000. This acquisition gave Brown the ability to exercise significant influence over Oranges operating and financing policies. Orange reports assets on that date of $800,000 with liabilities of $250,000. One building with a 10-year remaining life is undervalued on Oranges books by $70,000 while the book value for its trademark (7-year remaining life) is undervalued by $105,000. During the year, Orange reports net income of $45,000 while declaring dividends of $15,000. Prepare 2016 journal entries. Required: a) Calculate the Investment in Orange Company balance in Browns financial records as of December 31, 2016? b) Prepare the 2016 journal entries in Browns records.

Answer

a) Calculations of the Investment in Orange Company balance in Browns financial records as of December 31, 2016:

B) The 2016 journal entries in Browns records: Date Accounts Dr. Cr.