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Jim Beam company purchases a 25% interest in Old Forester company and concludes that it can exert significant influence over the investee. The book value
- Jim Beam company purchases a 25% interest in Old Forester company and concludes that it can exert significant influence over the investee. The book value of the Old Foresters Stockholders Equity on the acquisition date is $500,000, and Jim Beam purchases its 25% interest for $145,000. Jim Beam is willing to pay the purchase price because Old Forester owns an unrecorded (internally developed) patent with a fair value equal to $80,000. The patent has a remaining useful life of 10 years. After the acquisition, the Old Forester reports net income of $100,000, and pays a cash dividend to the Jim Beam of $20,000. At the end of the first year, the Jim Beam sells the Equity Investment for $180,000.
Prepare all the required journal entries to account for this Equity Investment during the year.
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