On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Companycommon stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery’s operations. Runyan received dividends of $2.00 per share onDecember 15, 2018, and Lavery reported net income of $160 million for the year ended December 31, 2018. Themarket value of Lavery’s common stock at December 31, 2018, was $31 per share. On the purchase date, thebook value of Lavery’s net assets was $800 million and:a. The fair value of Lavery’s depreciable assets, with an average remaining useful life of six years, exceededtheir book value by $80 million.b. The remainder of the excess of the cost of the investment over the book value of net assets purchased wasattributable to goodwill.Required:1. Prepare all appropriate journal entries related to the investment during 2018, assuming Runyan accounts forthis investment by the equity method.2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interestin the net assets of Lavery rather than a 30% interest.
On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company
common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery’s operations. Runyan received dividends of $2.00 per share on
December 15, 2018, and Lavery reported net income of $160 million for the year ended December 31, 2018. The
market value of Lavery’s common stock at December 31, 2018, was $31 per share. On the purchase date, the
book value of Lavery’s net assets was $800 million and:
a. The fair value of Lavery’s depreciable assets, with an average remaining useful life of six years, exceeded
their book value by $80 million.
b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was
attributable to
Required:
1. Prepare all appropriate
this investment by the equity method.
2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest
in the net assets of Lavery rather than a 30% interest.
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