Question
On 01-01-19 Leia paid $4,800,000 for 120,000 of the 500,000 shares of Evan's outstanding common stock. During 2019, Evan reported net income of $800,000 and
On 01-01-19 Leia paid $4,800,000 for 120,000 of the 500,000 shares of Evan's outstanding common stock. During 2019, Evan reported net income of $800,000 and paid $100,000 of dividends to all of its shareholders. During 2020, Evan reported a net loss of $40,000 and paid $100,000 of dividends to all of its shareholders. As of 12-31-19 and 12-31-20, the fair market value of one share of Evans stock was $43 and $39, respectively. Assume Leias interest in Evan gives Leia the ability to exercise significant influence over Evans operating and financial policies. Prepare the entry Leia should make on 01-01-19 for the purchase of the Evan stock. Prepare any additional entry(ies) Leia should make during 2019 and 2020 related to her investment in Evan. Before income taxes, what should Leia report on her 2019 and 2020 income statements as a result of her investment in Evan? Clearly describe what and how much Leia should report. What should be the carrying amount of Leias investment on her 12-31-19 and 12-31-20 balance sheets?
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