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Prepare the journal entries required by investor

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On January 4, 2017, Investor Company paid $48.6 million cash for 2 million shares of Investee Corp. common stock. The investment represents a 4% interest in the net assets of Investee. Investor does not have significant influence over the Investee's Corp. The investment was not made to speculate in short-term price movements. Investor received dividends of $0.55 per share on December 15, 2017, and Investee reported net income of $165 million for the year ended December 31, 2017. The market value of Investee's common stock at December 31, 2017 was $26.50 per share. On the purchase date, the book value of Investee's net assets was $600 million and:

  • The fair market value of Investee's depreciable assets, with an average remaining useful life of fifteen years exceeded their book value by $140 million. The fair market values and book values were equal for Investee's other net assets.

Problem 1. Prepare the journal entries required by Investor in 2017. Show all answers in millions ($). For example, $2,190,000 would be shown as $2.19M.

Problem 2. Prepare the journal entries required by Investor in 2018, assuming:

a. Investor sold Investee shares for $22.75 per share on December 15, 2018 and

b. Investee reported net income of $180 million for the year ended December 31, 2018.

Problem 3. Give the Balance Sheet value of Investor's investment in Investee at December 31, 2018 and the total net income effect of all transactions relating to the investment in Investee for fiscal 2018.

Reference no: EM132734642

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