Reference no: EM132758578

Question - During January 2020, Apple Inc., a private enterprise that uses ASPE, purchased 40% of the common shares of Banana Corp. for $484,000. Apple was now able to exercise considerable influence in decisions made by Banana's management. Banana Corp.'s statement of financial position reported the following information at the date of acquisition:

Assets not subject to being amortized $242,000

Assets subject to amortization (10 years average life remaining) 732,000

Liabilities 136,000

Additional information:

Both the carrying amount and fair value are the same for assets that are not subject to amortization and for the liabilities.

The fair value of the assets subject to amortization is $885,000.

The company amortizes its capital assets on a straight-line basis.

Banana reported net income of $192,000 and declared and paid dividends of $132,000 in 2020.

Required -

1. Prepare the journal entry to record Apple's investment in Banana Corp. Assume that any unexplained payment is goodwill.

2. Assuming Apple applies the equity method to account for its investment in Banana, prepare the journal entries to record Apple' equity in the net income and the receipt of dividends from Banana Corp. in 2020.

3. Assume the same factors as above and in part (2), except that Banana's net income included a loss on discontinued operations of $45,000 (net of tax). Prepare the journal entries necessary to record Apple's equity in the net income of Banana for 2020.