Question
On January 4, 2016, Runyan Bakery paid $328 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest
On January 4, 2016, Runyan Bakery paid $328 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $2.50 per share on December 15, 2016, and Lavery reported net income of $170 million for the year ended December 31, 2016. The market value of Lavery's common stock at December 31, 2016, was $31 per share. On the purchase date, the book value of Lavery's net assets was $820 million and: |
a. | The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $60 million. |
b. | The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. |
Required: |
Prepare all appropriate journal entries related to the investment during 2016, assuming Runyan accounts for this investment by the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).) 1 Record the purchase of Lavery Labeling stock for $328 million. 2 Record Runyan Bakery's share of Lavery's $170 million net income. 3 Record the receipt of cash dividends of $2.5 per share on 10 million shares. 4 Record any necessary entry related to depreciation. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $60 million. 5 Record any necessary adjusting entry to correctly report the investment on the balance sheet. The market value of Lavery's common stock at December 31, 2016 was $31 per share.
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