Reference no: EM132418669
Problem: On January 1, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares of Loki Inc., a publicly traded firm. This acquisition provided Thor with significant influence. Thor paid $700,000 cash for the investment. At the time of the acquisition, Loki reported assets of $2,500,000 and liabilities of $1,200,000. Asset values reflected fair market value, except for capital assets that had a net book value of $500,000 and a fair market value of $730,000. These assets had a remaining useful life of five years. For 2014 Loki reported net income of $400,000 and paid total cash dividends of $100,000.
On May 16, 2018, Thor sold 15,000 of its shares in Loki for $425,000. Thor has no immediate plans to sell its remaining investment in Iceberg.
Loki is actively traded, and stock price information follows:
- January1,2014=$23
- December31,2014=$25
- January1,2018=$26
Required
- Assuming Thor is using ASPE, did the initial investment include a payment for goodwill? Provide support for your answer.
- At the end of 2014, what would appear on the income statement and balance sheet of Thor in connection with its investment in Loki? Show supporting calculations.
- Provide the entry to account for Thor's sale of the shares in May 2018. How should Thor account for its remaining investment in Loki?