Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On 1/1/20x1, Living Technologies Company purchased an investment in the voting common stock of Home Solutions, Inc. for $100,000 cash. With its investment, Living Technologies

On 1/1/20x1, Living Technologies Company purchased an investment in the voting common stock of Home Solutions, Inc. for $100,000 cash. With its investment, Living Technologies Company did not retain significant influence over the financing and operating policies of Home Solutions

Home Solutions, Inc.s common stock is held by a small group of related investors and the fair value of that common stock is difficult to determine. But, based on the number of Home Solutions common shares outstanding, at 1/1/20x1, Living Technologies investment represents 10% of Home Solutions outstanding common shares.

On 1/1/20x3, Living Technologies Company purchased an additional 15% of Home Solutions, Inc.s outstanding voting common stock. The cost of their additional investment is $150,000, which they paid with cash. Amounts paid in excess of the book value of net assets represents an increase in value of a machinery and equipment with a remaining useful life of 5 years

With this additional investment, Living Technologies can exercise significant influence over the financing and operating policies of Home Solutions but does not retain a controlling financial interest, as defined in the accounting rules.

Relevant financial information for Home Solutions, Inc. is as follows:

Additional Information

Fiscal Year-ending

12/31/20x1

12/31/20x2

12/31/20x3

Net income

$35,000

$45,000

$55,000

Dividends declared and paid

$5,000

$6,500

$8,500

Book value of Home Solutions net assets

$880,000

$918,500

$965,000

Required:

  1. Prepare the journal entry to record Living Technologies investment in Home Solutions at 1/1/20x1.
  2. For fiscal year 20x1 and 20x2, prepare the journal entry (or entries) for Living Technologies share of dividends and income, as applicable.
  3. Show the change in Living Technologies investment in Home Solutions from 1/1/20x1 to 12/13/20x3, before accounting for the additional investment.
  4. Prepare the journal entry for Living Technologies additional investment in Home Solutions at 12/31/20x3. (For this purpose, assume that the fair value of their initial investment was equal to the price paid to acquire that investment)
  5. For fiscal year 20x3, prepare journal entries for Living Technologies share of dividends and income, as applicable.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting For Undergraduates

Authors: James Wallace, Scott Hobson, Theodore Christensen

2nd Edition

1618533096, 9781618533098

More Books

Students also viewed these Accounting questions

Question

1.6 Identify and explain three communication contexts.

Answered: 1 week ago