Reference no: EM132831983
Question - On January 1, Year 4, Cat Corporation purchased common shares of Mouse Limited for $2,000,000. On that date the net assets of Mouse had carrying value of $6,000,000 and all of the individual assets of Mouse had fair values that were equal to their carrying values except for:
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Fair Value
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Book value
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Machine (remaining life of 5 years)
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$1,000,000
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$500,000
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The following relates to Mouse since the acquisition date:
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Year
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Net Income
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Dividends paid
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4
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$220,000
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$170,000
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5
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190,000
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180,000
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In Year 5, there was a goodwill impairment loss equal to 10% of the goodwill created at acquisition date. On January 15, Year 6, because of negative market indicators, Cat's investment in Mouse was tested for impairment and it was determined that the recoverable amount was $1,500,000.
Required - Prepare all the journal entries that Cat should make regarding this investment in Mouse for Years 4, 5 and on January 15, Year 6 assuming the following two independent cases:
a) Cat owns 30% of common shares of Mouse.
b) Cat owns 30% of common shares of Mouse. There is only one other shareholder who owns 70% of the Mouse common shares.
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