On January 1, 2020 Wooldrik Inc. acquired 5,600 shares (with a par value of 500 per share) of Leuriks Corporation. The consideration transferred for these shares exists of two parts:

• Wooldrik issues 2,800 new shares that have a par value of 250 per share. On that date the total book value per share of Wooldrik is 1,250 and the fair value per share is 1,875;
• Wooldrik pays an additional amount of 875 in cash for each purchased share of Leuriks.

On January 1, 2020 the balance sheet of Leuriks shows the following accounts:

Balance sheet Leuriks, January 1, 2017 (x 1.000)

Land and buildings	30,000	Common stock		10,000
Equipment	10,000	Additional paid-in capital		5,000
Inventory	4,500	Retained earnings		12,000
Accounts receivable	3,500	Long-term liabilities	6,000
Cash	2,000	Current liabilities		17,000
	50,000			50,000

At January 1, 2020, the fair value of the buildings is 6,000,000 higher than the book value. The remaining life of those buildings is 15 years. The fair value of the accounts receivable of Leuriks is assessed to be 300,000 lower than the book value. All of the other book values represent the fair values of the assets and liabilities.

Leuriks generated net income of 4,500,000 in 2020 and it paid a cash dividend of 10% of its common stock to its stockholders. By the end of 2020, from the point of view of Wooldrik, the accounts receivable of Leuriks are worth 200,000 less than their book value. This lower value is taken into account for calculating the equity value of the investment in Leuriks.

During 2020 Leuriks sold inventory with an original cost of 500,000 to Wooldrik for 600,000. Of this inventory 150,000 (transfer price) was unsold to outsiders in 2020.

Question 1

Is it likely that Wooldrik has significant influence over Leuriks? Explain your answer.

Question 2

Significant influence can be obtained in several ways. Give one of the ways that allow Wooldrik to have significant influence over Leuriks.

Question 3

For January 1, 2020 compute the amount of goodwill that Wooldrik has paid for the investment in Leuriks.

Question 4

Give the journal entry that Wooldrik has made on January 1, 2020 of the investment in Leuriks in its single accounts.

Question 5

For 2020 compute the amount that Wooldrik should report as income from its investment in Leuriks in its external financial statements under the equity method.

Question 6

For 2020 compute the amount that Wooldrik should report as income from its investment in Leuriks in its external financial statements if Wooldrik applies the initial value method.