Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 2020, Defillo Corporation purchased 40 percent (80,000 shares) of the common stock of Casals, Inc., for $1,200,000 in cash and began to

image text in transcribed

On January 1, 2020, Defillo Corporation purchased 40 percent (80,000 shares) of the common stock of Casals, Inc., for $1,200,000 in cash and began to use the equity method for the investment. The price paid represented a $300,000 payment in excess of the book value of Defillo's share of Casals' underlying net assets. Defillo was willing to make this extra payment because of a recently developed patent held by Casals with a 15-year remaining life. All other assets were considered appropriately valued on Casals' books. Casals declares and pays a $250,000 cash dividend to its stockholders each year on September 15. Casals reported net income of $800,000 in 2020 and $750,000 in 2021. Each income figure was earned evenly throughout its respective years. On July 1, 2021, Defillo sold 20,000 shares of its 80,000 shares in Casals for $350,000 in cash. Although it sold this interest, Defillo maintained the ability to significantly influence Casals' decision- making process. Required: (Show all your calculations) A. Prepare all necessary journal entries for Defillo's investment in Casals for the year 2020. B. Prepare all necessary journal entries for Defillo's investment in Casals for the year 2021. C. Determine the balances for the following accounts in Defillo's books at the dates specified: 9/15/2020 12/31/2020 6/30/2021 12/31/2021 Investment in Casals Equity in subsidiary earnings

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_2

Step: 3

blur-text-image_3

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

The Routledge Companion To Fair Value In Accounting

Authors: Gilad Livne

1st Edition

0367656132, 9780367656133

More Books

Students also viewed these Accounting questions

Question

Understand links between the university business model and HRM.

Answered: 1 week ago