Reference no: EM132949139
On January 4, 2021, Runyan Bakery paid $324 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 $2.00 per share on December 15, 2021, and Lavery reported net income of $160 million for the year ended December 31, 2021. The market value of Lavery's common stock at December 31, 2021 was $31 per share.
On the purchase date, the book value of Lavery's net assets was $800 million and:
a) The fair value of Lavery's depreciable assets, with an average remaining life of six years exceeded their book value by $80 million;
b) The remainder of the excess of the cost of the investment over the book value of the net assets purchased was attributable to goodwill.
Problem 1: Prepare all appropriate journal entries related to the investment during 2022, assuming Runyan accounts for this investment as an FVTPL investment
Problem 2: What would be the effect of this investment over the book value of net assets purchased was attributable to goodwill
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