On January 4, 2024, Runyan Bakery paid $334 millionfor 10 million shares of Lavery Labeling Companycommon stock. The investment represents a 30%interest in the net assets of Lavery and gave Runyan theability to exercise significant influence over Lavery'soperations. Runyan received dividends of $4.00 pershare on December 15, 2024, and Lavery reported netincome of $200 million for the year ended December31, 2024. The market value of Lavery's common stockat December 31, 2024, was $31 per share. On thepurchase date, the book value of Lavery's identifiablenet assets was $850 million and: The fair value ofLavery's depreciable assets, with an average remaininguseful life of nine years, exceeded their book value by $90 million. The remainder of the excess of the cost ofthe investment over the book value of net assetspurchased was attributable to goodwill. Required:Prepare all appropriate journal entries related to theinvestment during 2024, assuming Runyan accounts forthis investment by the equity method. Prepare thejournal entries required by Runyan, assuming that the10 million shares represent a 10% interest in the netassets of Lavery rather than a 30% interest.

The equity method of accounting is used to account for one organization's investment in another…

purchased was attributable to goodwill. Required: Prepare all appropriate journal entries related to the investment during 2024, assuming Runyan accounts for this investment by the equity method. Prepare the

purchased was attributable to goodwill. Required: Prepare all appropriate journal entries related to the investment during 2024, assuming Runyan accounts for this investment by the equity method. Prepare the

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On January 4, 2024, Runyan Bakery paid $334 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 $4.00 per
share on December 15, 2024, and Lavery reported net
income of $200 million for the year ended December
31, 2024. The market value of Lavery's common stock
at December 31, 2024, was $31 per share. On the
purchase date, the book value of Lavery's identifiable
net assets was $850 million and: The fair value of
Lavery's depreciable assets, with an average remaining
useful life of nine years, exceeded their book value by $
90 million. The remainder of the excess of the cost of
the investment over the book value of net assets
purchased was attributable to goodwill. Required:
Prepare all appropriate journal entries related to the
investment during 2024, assuming Runyan accounts for
this investment by the equity method. 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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