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. Yes, it is likely to have significant influence over Leuriks, because I has more than 20% ownership Question 2 Significant influence can be obtained in several ways. Give one of the ways that allow Wooldcik to have significant influence over Leuriks. Participation in the Leuriks policy making process 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. 2 Financial Accounting IFA 3.1/IFAS 4.1, November 10, 2020 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. 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. Yes, it is likely to have significant influence over Leuriks, because I has more than 20% ownership Question 2 Significant influence can be obtained in several ways. Give one of the ways that allow Wooldcik to have significant influence over Leuriks. Participation in the Leuriks policy making process 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. 2 Financial Accounting IFA 3.1/IFAS 4.1, November 10, 2020 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