Question
Problem IV On January 3, 2013, Hardaway Industries paid $48 million for 6 million shares of Penny House, Inc. common. The investment represents a 30%
Problem IV
On January 3, 2013, Hardaway Industries paid $48 million for 6 million shares of Penny House, Inc. common. The investment represents a 30% interest in the net assets of Penny House and gave Hardaway the ability to exercise significant influence over Penny House's operating and financial policies. Hardaway received dividends of $1.00 per share on December 15, 2013 and Penny House reported net income of $40 million for the year ended December 31, 2013. The market value of Penny House's common stock at December 31, 2013 was $9 per share.
Required:
Prepare the journal entries required by Hardaway for 2013, assuming that:
a. The book value of Penny House's net assets was $90 million.
b. The fair value of Penny House's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $20 million.
c. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.
Hardaway purchases the Penny House shares.
($ in millions)
Penny House reports net income.
Penny House pays cash dividends.
Adjustments.
Depreciation:
Goodwill:
Increase in fair value of shares:
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