Question
Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of
Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Incorporated on January 2, 2024, for $430 million.
At the date of purchase, the book value of Vancouver's net assets was $790 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $10 million for the inventory and by $15 million for the plant facilities.
The estimated useful life of the plant facilities is 12 years. All inventory acquired was sold during 2024.
Vancouver reported net income of $170 million for the year ended December 31, 2024. Vancouver paid a cash dividend of $40 million.
Required:
- Prepare all appropriate journal entries related to the investment during 2024.
- What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2024?
- What amount should Northwest report in its balance sheet as its investment in Vancouver?
- What should Northwest report in its statement of cash flows regarding its investment in Vancouver?
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