Reference no: EM132315349

Question

On October 1, 2018, Blevins Inc. bought 25% of the outstanding common stock of Silva Company for $8,000,000 cash, and it was presumed that significant influence was achieved.

At the date of acquisition, Silva' net identifiable assets had a book value of $16,000,000. In conducting its due diligence, Blevins discovered that the difference between book value and purchase price was attributable to the fair value of Silva's land, buildings, patents, and goodwill. The fair value of the land was $2,400,000 more than the book value.

The fair value of the buildings was $1,000,000 more than the book value. The fair value of the patents was $3,600,000 more than the book value. The buildings have a remaining useful life of 8 years. The patents have a remaining useful life of 3 years.

Assume straight-line depreciation and amortization with no salvage values. Silva's net income for the year ended December 31, 2018, was $3,500,000 (income was earned evenly throughout the year). During 2018, Silva paid $2,000,000 of cash dividends - $500,000 each quarter of the year.

In 2019, Silva reported net income of $3,000,000 and paid dividends of $1,500,000.

On January 1, 2020, Blevins sold his investment in Silva for $12,000,000 cash.

Required:

Prepare appropriate journal entries related to the investment for 2018, 2019, and 2020, assuming Blevins accounts for this investment using the equity method.