8. Victory Motors, Inc. purchases 22% of the common stock of Apps Motorcycles on
ID: 2481856 • Letter: 8
Question
8. Victory Motors, Inc. purchases 22% of the common stock of Apps Motorcycles on January 1, 2015 for $12,000,000 with a price per share of $60.
On January 1, 2016, Apps issues additional common shares which brings Victory Motor’s ownership percentage to 16%.
Below are highlights for Apps Motorcycles for 2015 and 2016. Victory Motors classifies equity investments as available for sale when using the fair value method.
2015 2016
Net income $4,000,000 $5,000,000
Dividends paid (total) 2,000,000 2,500,000
Fair value per share $65 $55
a) Prepare the journal entries for Victory Motors Inc. for 2015, including the acquisition.
b) Prepare the journal entries for 2016.
Explanation / Answer
Details Amt $ Victory Motors 12,000,000 Price per share 60 No of Shares purchased = 200,000 2015 share of dividends @22% 440,000 2016 share of dividends @16% 400,000 Journal Entries Date Account Title Dr $ Cr $ Jan 1.2015. Cash 12,000,000 Investment in Available for Sale Security-Apps MotorCycles 12,000,000 (purchase of investment) 2,015 Cash 440,000 Dividend Income 440,000 (receipt of dividend) Dec 31 2015. Valuation Allowance-Investment in Available for Sale Security 1,000,000 Unrealized Holding Gain /(Loss) in Available for Sale Security 1,000,000 ( fair value adjustment @$5 per share) Year 2016. 2,015 Cash 400,000 Dividend Income 400,000 (receipt of dividend) Dec 31 2015. Valuation Allowance-Investment in Available for Sale Security 2,000,000 Unrealized Holding Gain /(Loss) in Available for Sale Security 2,000,000 ( fair value adjustment @$10 per share to bring the FV at $55 per share)
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