Northwest Paperboard Company, a paper and allied products manufacturer, was seek

Question

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2016, for $470 million.

At the date of purchase, the book value of Vancouver's net assets was $810 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $10 million for the inventory and by $15 million for the plant facilities.

The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2016.

Vancouver reported net income of $210 million for the year ended December 31, 2016. Vancouver paid a cash dividend of $30 million.

Prepare all appropriate journal entries related to the investment during 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

What amount should Northwest report in its balance sheet as its investment in Vancouver? (Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

What should Northwest report in its statement of cash flows regarding its investment in Vancouver? (Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2016, for $470 million.

Explanation / Answer

Using equity method

1) journal entries

Investment in Vancouver Timber and Milling, Inc. $470

To Cash $470

Record the acquisition of Vancouver Timber and Milling, Inc

2) Investment in Vancouver Timber and Milling, Inc. $84

To Equity in Earnings of Affiliate $84

To record Northwest Paperboard Company’s share in the income earned by Vancouver Timber and Milling, Inc

Cash $12

To Investment inVancouver Timber and Milling, Inc. $12

To record dividends received from ABC

3)

Firm Northwest Paperboard Company’s “Investment in Vancouver Timber and Milling, Inc.” account now has a balance of $542 by the end of 2016: Balance $470+84-12

4)

Amount of $ 470 in Cash flow from Investing Activities and $ 12 also from investing. no treatment of Equity in Earnings of Affiliate $84

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