3, 1/1/16 The Snow Company bought 30% of the Jones Corp for $450 million. The fa

Question

3, 1/1/16 The Snow Company bought 30% of the Jones Corp for $450 million. The fair value of Jone's assets was $900 million and the book value was $800. The difference between the book and fair value is the result of land (50% of the difference))and building(50%). The remaining life of the building is 10 year:s Jones had net income of $150 million and paid out dividends of $30 million during the year. Prepare all journal entries relating to Snow's purchase. Calculate the value of the investment in Jones at year end. Is there any goodwill? If ao, how much? Smith Co paid $1,088 million for 6.4 million shares of Doe Corp. Smith now owns 40% of Doe. Doe paid $1 per share in dividends during the year and reported net income of $40 million. The fair value of Doe's stock was $20 per share at year end. The book value of Doe's net assets was $192. The fair value of Doe's assets exceeded the book value by $32. The excess of fair value over book value is due to depreciable assets with an 8 year life. Is there any goodwill? If so how much? Please make all of Smith's journal entries regarding Doe. Calculate the book value of the investment in Doe at year end.

Explanation / Answer

Entries in Standalone Financial Statements: 1. Purchase of Shares in Jones Corp - Entry Investment in Jones Corp A/c Dr $450 To Bank A/c $450 (Being purchase of 30% stake in Jones Corp at fair value of $ 900 Million at a Goodwill of $ 180 Million) 2. Dividend Received from Jones Corp Bank A/c Dr $9 To Dividend A/c $9 (Being Post acquisition Dividend received from Jones Corp $ 30 Million * 30% - $ 9 Million accounted as income) Entries in Consolidated Financial Statements: 1. Recording of Income of Associate Investment in Jones Corp A/c Dr $45 To Consolidated P&L $45 (Being Profit share of Snow accounted - $150 Million * 30%) 2. Recording of Dividend Dividend A/c Dr $9 To Investment in Jones Corp A/c $9 (Being dividend received from Jones Corp reduced from Investment)

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