Problem 12-10 (Algo) Investment securities and equity method investments compared [LO12-6, 12-7] On January 4, 2021, Runyan Bakery paid $358 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 $3.50 per share on December 15, 2021, and Lavery reported net income of $320 million for the year ended December 31, 2021. The market value of Lavery's common stock at December 31, 2021, was $34 per share. On the purchase date, the book value of Lavery's identifiable net assets was $970 million and: a. The fair value of Lavery's depreciable assets, with an average remaining useful life of seven years, exceeded their book value by $70 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 2021, 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. 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 2021, 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).) Journal entry worksheet 1 2 3 4 5 Record the purchase of Lavery Labeling stock for $358 million. Note: Enter debits before credits. General Journal Debit Credit Transaction 1 Journal entry worksheet Record Runyan Bakery's share of Lavery's $320 million net income. Note: Enter debits before credits. General Journal Debit Credit Transaction 2 Journal entry worksheet 1 2 3 3 4 5 > N Record the receipt of cash dividends of $3.5 per share on 10 million shares. Note: Enter debits before credits. General Journal Debit Credit Transaction 3 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 seven years, exceeded their book value by $70 million. Note: Enter debits before credits. Transaction 4 General Journal Debit Credit Journal entry worksheet Record the purchase of Lavery Labeling stock for $358 million. Note: Enter debits before credits. General Journal Debit Credit Transaction 1 Journal entry worksheet Record Runyan Bakery's share of Lavery's $320 million net income. Note: Enter debits before credits. General Journal Debit Credit Transaction 2 Journal entry worksheet
