On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares
ID: 2709083 • Letter: O
Question
On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow Manufacturing's balance sheet immediately before the acquisition contained the following items:
On the date of the stock acquisition, Hunter's shares were selling at $35, and Arrow Manufacturing's buildings and equipment had a remaining economic life of 10 years. The amount of the differential assigned to goodwill is not impaired.
In the two years following the stock acquisition, Arrow Manufacturing reported net income of $89,000 and $59,000 and paid dividends of $24,000 and $49,000, respectively. Hunter used the equity method in accounting for its ownership of Arrow Manufacturing.
Prepare the entry recorded by Hunter Corporation at the time of acquisition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entries recorded by Hunter during 20X0 related to its investment in Arrow Manufacturing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entries recorded by Hunter during 20X1 related to its investment in Arrow Manufacturing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
What balance will be reported in Hunter’s investment account on December 31, 20X1?
On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow Manufacturing's balance sheet immediately before the acquisition contained the following items:
Explanation / Answer
Answer:
Tere wont be any entry in the books of Hunter Corporation as the investment will be set off with the shareholders funds
In the following year :
Entries for investment :
Investment A/c 100000
To Share capital 100000
In the next year there wont be any changes in the fair value of the investment as it is to be carried at par value.
The closing balance of the investment A/c would be 100000
Thank You
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