On January 4, 2018, Runyan Bakery paid $362 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 $4.00 per share on December 15, 2018, and Lavery reported net income of $340 million for the year ended December 31, 2018. The market value of Lavery's common stock at December 31, 2018, was $33 per share. On the purchase date, the book value of Lavery's net assets was $990 million and: a. The fair value of Lavery's depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 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: 1. Prepare all appropriate journal entries related to the investment during 2018, assuming Runyan accounts for this investment by the equity method. 2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest. Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare all appropriate journal entries related to the investment during 2018, 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).) Credit No 1 Event 1 General Journal Investment in Lavery Labeling shares Cash Debit 362 / 362 - 2 102 Investment in Lavery Labeling shares Cash 102 V 33 40 Cash Dividend revenue 40 Investment revenue Investment in Lavery Labeling shares Unrealized holding lossNI Fair value adjustment Journal entry worksheet Record Runyan Bakery's share of Lavery's $340 million net income. Note: Enter debits before credits. Event Credit General Journal Investment in Lavery Labeling shares Cash Debit 102 102 Record entry Clear entry View general journal Journal entry worksheet Record the receipt of cash dividends of $4 per share on 10 million shares. Note: Enter debits before credits. Credit Event 3 General Journal Cash Dividend revenue Debit 401 Record entry Clear entry View general journal Journal entry worksheet Record any necessary entry related to depreciation. The fair value of Lavery's depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 million. Note: Enter debits before credits. Event Debit Credit General Journal Investment revenue Investment in Lavery Labeling shares Record entry Clear entry View general journal Journal entry worksheet 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, 2018 was $33 per share. Note: Enter debits before credits. Event 5 Credit General Journal Unrealized holding lossNI Fair value adjustment Debit 32 32 Record entry Clear entry View general journal Journal entry worksheet Record the purchase of Lavery Labeling stock for $362 million. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet
