3. Roosevelt Corporation acquires 55% of DePaul Company for $40,000,000 on Janua

Question

3. Roosevelt Corporation acquires 55% of DePaul Company for $40,000,000 on January 1, Year 6. At the time of acquisition, DePaul has total net assets with Fair value of $25,000,000. For the years ended Dec. 31st, Year and Dec. 31st Year 7, DePaul reports net income (loss) and pays dividends as shown here: Year 6: Net income (loss) $1,500,000 Dividends paid: $1,200,050
Year 7 Net income (loss): $(500,000) Dividends paid: $ 950,100
Compute the value of Roosevelt Corporation’s investment in DePaul Company as of Dec 31, Year 7 under the equity method
3. Roosevelt Corporation acquires 55% of DePaul Company for $40,000,000 on January 1, Year 6. At the time of acquisition, DePaul has total net assets with Fair value of $25,000,000. For the years ended Dec. 31st, Year and Dec. 31st Year 7, DePaul reports net income (loss) and pays dividends as shown here: Year 6: Net income (loss) $1,500,000 Dividends paid: $1,200,050
Year 7 Net income (loss): $(500,000) Dividends paid: $ 950,100
Compute the value of Roosevelt Corporation’s investment in DePaul Company as of Dec 31, Year 7 under the equity method
3. Roosevelt Corporation acquires 55% of DePaul Company for $40,000,000 on January 1, Year 6. At the time of acquisition, DePaul has total net assets with Fair value of $25,000,000. For the years ended Dec. 31st, Year and Dec. 31st Year 7, DePaul reports net income (loss) and pays dividends as shown here: Year 6: Net income (loss) $1,500,000 Dividends paid: $1,200,050
Year 7 Net income (loss): $(500,000) Dividends paid: $ 950,100
Compute the value of Roosevelt Corporation’s investment in DePaul Company as of Dec 31, Year 7 under the equity method

Explanation / Answer

Answer:

On Acquisition Roosevelt Corporation's shall pass the following entry;

Dr. Investment in Susidiary                                          $ 40,000,000

Cr. Cash or Bank                                                                                            $ 40,000,000

Year 6; when Net Income of Subsidiary is $ 1,500,000 and Dividends paid by subsidiary is $ 1,200,050; then

Roosevelt will pass following entries;

Dr. Investment in Subsidiary                                     $ 825,000 (55% of $ 1,500,000)

Cr. Equity Income from Subsidiary                                                     $ 825,000

(beings 55% share in net income of subsidiary recorded)

Dr. Cash or Bank                                                        $ 660,027.50

Cr. Investment in Subsidiary                                                             $ 660,027.50

(being 55% share of subsidiary dividend recorded)

Balance of Investment on Dec 31, year 6 = $ 40,000,000 + $ 825,000 - $ 660,027.50 = $ 40,164,972.50

Year 7; when Net Income of Subsidiary is ($ 500,000) and Dividends paid by subsidiary is $ 950,100; then

Dr. Equity Loss from Subsidiary                                     $ 275,000 (55% of $ 500,000)

Cr. Investment in Subsidiary                                                     $ 275,000

(beings 55% share in net loss of subsidiary recorded)

Dr. Cash or Bank                                                        $ 522,555

Cr. Investment in Subsidiary                                                             $ 522,555

(being 55% share of subsidiary dividend recorded)

Balance of Investment on Dec 31, year 7 = $ 40,164,972.50 - $ 275,000 - $ 522,555 = $ 39,367,417.50

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