Question 3 (25 points) On January 4, 2018, Investor Company paid $266 million cash for 53 million shares of Investee Corp. common stock. The investment represents a 26% interest in the net assets of Investee and gave Investor the ability to exercise significant influence over Investee's operations. Investor received dividends of $0.52 per share on June 30, 2018, and Investee reported net income of $312 million for the year ended December 31, 2018. The market value of Investee's common stock at December 31, 2018, was $7 per share. On the purchase date, the book value of Investee's net assets was $675 million and: The fair market value of Investee's depreciable assets, with an average remaining useful life of ten years, exceeded their book value by $95 million. The fair market values and book values were equal for Investee's other net assets. 1. Prepare all appropriate journal entries related to the investment during 2018. (13 points) Show all answers in $millions. For example, $2,190,000 would be shown as $2.19 M. Question 3 (continued) 2. How much of Investor's initial investment in Investee on January 4, 2018 was Goodwill? Please show all work for full credit (4 points) 3. Give the Balance Sheet value in Investor's investment in Investee at December 31, 2018 and the total net income effect of all transactions relating to the investment in Investee for fiscal 2018. (8 points) Investment on Balance Sheet: Effect on Net Income: Question 3 (25 points) On January 4, 2018, Investor Company paid $266 million cash for 53 million shares of Investee Corp. common stock. The investment represents a 26% interest in the net assets of Investee and gave Investor the ability to exercise significant influence over Investee's operations. Investor received dividends of $0.52 per share on June 30, 2018, and Investee reported net income of $312 million for the year ended December 31, 2018. The market value of Investee's common stock at December 31, 2018, was $7 per share. On the purchase date, the book value of Investee's net assets was $675 million and: The fair market value of Investee's depreciable assets, with an average remaining useful life of ten years, exceeded their book value by $95 million. The fair market values and book values were equal for Investee's other net assets. 1. Prepare all appropriate journal entries related to the investment during 2018. (13 points) Show all answers in $millions. For example, $2,190,000 would be shown as $2.19 M. Question 3 (continued) 2. How much of Investor's initial investment in Investee on January 4, 2018 was Goodwill? Please show all work for full credit (4 points) 3. Give the Balance Sheet value in Investor's investment in Investee at December 31, 2018 and the total net income effect of all transactions relating to the investment in Investee for fiscal 2018. (8 points) Investment on Balance Sheet: Effect on Net Income
