On January 4, 2018, Runyan Bakery paid $340 million for 10 million shares of Lav

Question

On January 4, 2018, Runyan Bakery paid $340 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 $2.60 per share on December 15, 2018, and Lavery reported net income of $230 million for the year ended December 31, 2018. The market value of Lavery's common stock at December 31, 2018, was $32 per share On the purchase date, the book value of Lavery's net assets was $880 million and: a. The fair value of Lavery's depreciable assets, with an average remaining useful life of four years, exceeded their book value by $120 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. Complete this question by entering your answers in the tabs below Required 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).) View transaction list Journal entry worksheet 2 4 Record the purchase of Lavery Labeling stock for $340 million Note: Enter debits before credits.

Explanation / Answer

a

Share of earnings = 230*30% = 69

Share of dividends = 2.6*10 = 26

Fair value amortization = 120/4 *30% = 9

b

General journal Debit Credit Investment in lavery common stock                     340 To cash                     340 [Entry to record purchase of equity] Investment in lavery common stock                       69 Equity in Earnings of Lavery                       69 [Share of earnings for the year] Cash                       26 Investment in lavery common stock                       26 [Entry to record dividends received] Equity in Earnings of Lavery                          9 Investment in lavery common stock                          9 [ Excess fair value amortization] No entry to adjust market value per share at year end

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