Reference no: EM132743772
Question: On January 1, Year 4, Cat Corporation purchased 25% of the common shares of Mouse Limited for $1,800,000. On that date the net assets of Mouse had a carrying value of $6,400,000 and all of the individual assets of Mouse had fair values that were equal to their book values except for: Fair Value Carrying value Machine (remaining life of 3 years) $700,000 $ 1,000,000 The following relates to Mouse since the acquisition date: Year Net Income Dividends paid 4 $ 240,000 $ 200,000 5 180,000 220,000 In Year 5, there was a goodwill impairment loss equal to 15% of the goodwill created at acquisition date. On January 1, Year 6, because of negative market indicators, the market value of 25% of Cat's investment in Mouse was $1,600,000 and this decline was considered permanent.
Required: Prepare all the journal entries that Cat should make regarding this investment in Mouse for Years 4, 5 and on January 1, Year 6 assuming the following two independent cases:
a) Cat owns 25% of common shares of Mouse
b) Cat owns 25% of common shares of Mouse. There is only one other shareholder who owns 75% of the Mouse common shares.
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