Equity Method for Stock Investment
On January 15, 2014, National Star Inc. purchased 108,000 sharesof Krypton Labs Inc. directly from one of the founders for a priceof $50 per share. Krypton Labs has 300,000 shares outstanding,including the National Star shares. On July 2, 2014, Krypton paid$292,000 in total dividends to its shareholders. On December 31,2014, Krypton reported a net income of $1,009,000 for the year.National Star Inc. uses the equity method in accounting for itsinvestment in Krypton Labs.
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a. Provide the National Star Inc. journalentries for the transactions involving its investment in KryptonLabs Inc. during 2014.
b. Determine the December 31, 2014, balance ofInvestment in Krypton Labs Inc. Stock.
Equity Method for Stock Investment
On January 15, 2014, National Star Inc. purchased 108,000 sharesof Krypton Labs Inc. directly from one of the founders for a priceof $50 per share. Krypton Labs has 300,000 shares outstanding,including the National Star shares. On July 2, 2014, Krypton paid$292,000 in total dividends to its shareholders. On December 31,2014, Krypton reported a net income of $1,009,000 for the year.National Star Inc. uses the equity method in accounting for itsinvestment in Krypton Labs.
a. Provide the National Star Inc. journalentries for the transactions involving its investment in KryptonLabs Inc. during 2014. b. Determine the December 31, 2014, balance ofInvestment in Krypton Labs Inc. Stock. |
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Related questions
Change to Equity Method
On January 1, 2013, Lion Company paid $720,000 for 12,000 sharesof Wolf Company's voting common stock, which was a 10% interest inWolf. Lion does not have the ability to exercise significantinfluence over the operating and financial policies of Wolf. Lionreceived dividends of $1.00 per share from Wolf on October 2, 2013.Wolf reported net income of $380,000 for the year ended December31, 2013, and the ending market price of its shares was $65.
On July 2, 2014, Lion paid $2,412,000 for 36,000 additionalshares of Wolf's voting common stock, which represents a 30%investment in Wolf. The fair values of all of Wolf's assets, net ofliabilities, were equal to their book values of $8,040,000. As aresult of this transaction, Lion has the ability to exercisesignificant influence over the operating and financial policies ofWolf. Lion received dividends of $1.00 per share from Wolf on April2, 2014,and $1.25 per share on October 1, 2014. Wolf reported netincome of $480,000 for the year ended December 31, 2014, and$192,000 for the 6 months ended December 31, 2014.
Required:
For Lion, show the dividend income for 2013, as well as theDecember 31, 2013, unrealized holding gain or loss for theavailable-for-sale securities and carrying value of the investmentaccount.
| Dividend income for 2013 12,000 shares x $1 = $12,000 12/31/13 unrealized holding gain in value of available-for-salesecurities = ($65 - $720,000/12,000) x 12,000 = $5 x 12,000 = $60,000 12/31/13 carrying value of investment = $65 x 12,000 = $780,000 Assuming that Lion issues comparative financial statements for2013 and 2014, show the investment income for 2013 and 2014, aswell as the December 31, 2013 and 2014 carrying value of theinvestment account.
= $380,000 x 10% = 38,000 Investment income for 2014 $ X 12/31/14 carrying value $ X I can not figure out the Xs. Please show how you got youranswers. Thank you! |
| Haynes, Inc., obtained 100 percent of Turner Companyâs common stock on January 1, 2014, by issuing 11,300 shares of $10 par value common stock. Haynesâs shares had a $15 per share fair value. On that date, Turner reported a net book value of $126,000. However, its equipment (with a five-year remaining life) was undervalued by $8,200 in the companyâs accounting records. Also, Turner had developed a customer list with an assessed value of $35,300, although no value had been recorded on Turnerâs books. The customer list had an estimated remaining useful life of 10 years. |
| The following figures come from the individual accounting records of these two companies as of December 31, 2014: |
| Haynes | Turner | |||||||||
| Revenues | $ | (648,000 | ) | $ | (360,000 | ) | ||||
| Expenses | 486,000 | 173,000 | ||||||||
| Investment income | Not given | 0 | ||||||||
| Dividends declared | 80,000 | 90,000 | ||||||||
| The following figures come from the individual accounting records of these two companies as of December 31, 2015: |
| Haynes | Turner | |||||||||
| Revenues | $ | (845,000 | ) | $ | (412,750 | ) | ||||
| Expenses | 515,800 | 207,200 | ||||||||
| Investment income | Not given | 0 | ||||||||
| Dividends declared | 90,000 | 80,000 | ||||||||
| Equipment | 512,000 | 367,000 | ||||||||
| a. | What balance does Haynesâs Investment in Turner account show on December 31, 2015, when the equity method is applied? |
| b. | What is the consolidated net income for the year ending December 31, 2015? |
| c-1. | What is the consolidated equipment balance as of December 31, 2015? |
| c-2. | Would this answer be affected by the investment method applied by the parent? | ||||
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| d. | Prepare entry *C for each of the following methods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
1. Prepare entry *C if the parent used the initial value method.
December 31, 2015
2. Prepare entry *C if the parent used the partial equity method.
December 31, 2015
3. Prepare entry *C if the parent used the equity method.
December 31, 2015
$42,392. |
$4,500. |
$170,000 |
