Exercise 12-24 (Algo) Equity method, partial year [LO12-6, 12-7]

On July 1, 2021, Gupta Corporation bought 30% of the outstanding common stock of VB Company for $150 million cash, giving Gupta the ability to exercise significant influence over VBs operations. At the date of acquisition of the stock, VBs net assets had a total fair value of $410 million and a book value of $230 million. Of the $180 million difference, $24 million was attributable to the appreciated value of inventory that was sold during the last half of 2021, $120 million was attributable to buildings that had a remaining depreciable life of 10 years, and $36 million related to equipment that had a remaining depreciable life of 5 years. Between July 1, 2021, and December 31, 2021, VB earned net income of $40 million and declared and paid cash dividends of $30 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2021, assuming Gupta accounts for this investment by the equity method.

4. Record the amortization of the differential. 2. Determine the amounts to be reported by Gupta.

a. Investment in Gupta's December 31, 2021, balance sheet

b. Investment revenue (loss) in Gupta's 2021 income statement

c. Investing activities in Gupta's 2021 statement of cash flows