Prepare appropriate journal entries related to investment

Assignment Help Accounting Basics

Reference no: EM131881773

Problem

On January 4, 2016, 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, 2016, and Lavery reported net income of $200 million for the year ended December 31, 2016. The market value of Lavery's common stock at December 31, 2016, was $31 per share. On the purchase date, the book value of Lavery's net assets was $850 million and:

a. The fair value of Lavery's depreciable assets, with an average remaining useful life of nine years, exceeded their book value by $90 million.

b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Required:

1. Prepare all appropriate journal entries related to the investment during 2016, assuming Runyan accounts for this investment by the equity method.

Reference no: EM131881773

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