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, 2018, for $510 million.

At the date of purchase, the book value of Vancouver's net assets was $830 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 2018.

Vancouver reported net income of $250 million for the year ended December 31, 2018. Vancouver paid a cash dividend of $20 million.

Required:
1. Prepare all appropriate journal entries related to the investment during 2018.
2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018?
3. What amount should Northwest report in its balance sheet as its investment in Vancouver?
4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver?

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, 2018, for $510 million. At the date of purchase, the book value of Vancouver's net assets was $830 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 2018. Vancouver reported net income of $250 million for the year ended December 31, 2018. Vancouver paid a cash dividend of $20 million Required: 1. Prepare all appropriate journal entries related to the investment during 2018 2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018? 3. What amount should Northwest report in its balance sheet as its investment in Vancouver? 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver? Complete this question by entering your answers in the tabs below Req 1 Req 2 and 3 Req 4 Prepare all appropriate journal entries related to the investment during 2018. (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).) View transaction list Journal entry worksheet 2 3 4 Record the entry related to the purchase.

Explanation / Answer

1 Journal entries in the books of Northwest paperboard company for investment

Since Northwest Paperboard Company determines that it has paid $25 million more than the book value of Vancouver Timber and Milling, Inc. net assets. It assigns the extra payment to Vancouver Timber and Milling, Inc. one fixed asset, a plant facility with another 15 years of depreciable life. Each year for 15years, Northwest Paperboard Company enters a debit to the income account “equity in Vancouver Timber and Milling, Inc Income” and a credit to the investment account for $1 million.The debit to the income account reduces income -- in effect, it's an expense.

Vancouver posts $250 million in net income for the year. Northwest must recognize 40 percent of that figure, or $100 million, as income and as an increase to the carrying value of Vancouver. The journal entry debits Investment in Vancouver for $100 million and credits Equity in Vancouver Income by the same amount. Northwest also receives $8 million in dividends from Vancouver. The journal entry debits Cash and credits Investment in Vancouver for $8 million. This decreases the carrying value of Vancouver, because the dividends represent a return on investment.

2. Income Statement Account- $8 Million

Balance sheet Amount- 510+100+10-1= $619 Million

3.operating cash flow- nil

investing cash flow=$627 Million

date Particulars Debit(in million) Credit(in million) Jan 2, 2018 Investment in Vancouver Company 510 Cash 510 (For Investment Made) Jan 2,2018 ( no entry for excess payment made) Dec31, 2018 Cash    8   Investment in Vancouver Company 8 ( Dividends received) Dec31, 2018 Investment in Vancouver 100 Equity in Vancouver 100 ( income recorded in northwest) Dec31,2018 Equity in Vancouver 1   Asset account Investment in Vancouver 1 (amortisation of excess part paid) Dec31,2018 Investment in Vancouver 10 Equity in Vancouver 10 (Inventory sold off completely)

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