Font Paragraph Styles 2. (10 points) On January 5, 2018, Ivy Corp. purchased 25% of the outstanding common shares of Kay Company for $200 million. The book values and fair values for all balance sheet items of Kay Company were the same on January 5, 2018 except for the plant facilities. The fair valuc exceeds book value of plant facilities by $20 million. The estimated useful life of the plant facilities is 10 years. Kay Company reported net income of S 50 million for the year ended December 31, 2018 and paid a cash dividend of $10 million to all shares outstanding in 2018. Required: - a. Prepare all appropriate journal entries related to Ivy's investment in Kay Company during 2018 using the equity method. Note that Ivy uses the straight-line depreciation method for its depreciation adjustment of Kay's depreciable assets step-up. b. Assuming that Ivy Corp. does not have significant influence over the operations of Kay Company and classifies its investment in Kay Company as available-for-sale securities. The fair value of Ivy's investment in Kay was $270 million on 12/31/2018 and the fair value adjustment account balance was a debit of $20 million prior to the fair value adjustment on 12/31/2018. Record Ivy's receipt of dividends and the fair value adjustment entry for its investment in Kay on 12/31/2018. DX English (United States) D Focus m Font Paragraph Styles 2. (10 points) On January 5, 2018, Ivy Corp. purchased 25% of the outstanding common shares of Kay Company for $200 million. The book values and fair values for all balance sheet items of Kay Company were the same on January 5, 2018 except for the plant facilities. The fair valuc exceeds book value of plant facilities by $20 million. The estimated useful life of the plant facilities is 10 years. Kay Company reported net income of S 50 million for the year ended December 31, 2018 and paid a cash dividend of $10 million to all shares outstanding in 2018. Required: - a. Prepare all appropriate journal entries related to Ivy's investment in Kay Company during 2018 using the equity method. Note that Ivy uses the straight-line depreciation method for its depreciation adjustment of Kay's depreciable assets step-up. b. Assuming that Ivy Corp. does not have significant influence over the operations of Kay Company and classifies its investment in Kay Company as available-for-sale securities. The fair value of Ivy's investment in Kay was $270 million on 12/31/2018 and the fair value adjustment account balance was a debit of $20 million prior to the fair value adjustment on 12/31/2018. Record Ivy's receipt of dividends and the fair value adjustment entry for its investment in Kay on 12/31/2018. DX English (United States) D Focus m
