Nama: Alya Sufi Ikrima
NIM: 041911333248
Kelas: A1-SP
Tugas Pertemuan Kedua - Stock Investments-Investor Accounting and Reporting
a. E2-3 Journal entries for investment under cost method
On March 2, Klaus AG acquired 500 of Max AG’s 10,000 outstanding shares with a par value
of $10 for $10,000 in cash. Klaus AG didn’t have any significant influence on Max AG in this
transaction. On April 1, Max AG declared and paid dividends of $500,000. Klaus AG reported
income of $1,000,000 at the end of the period.
Required: Prepare the necessary journal entries in Klaus AG’s book from the above
information.
Answer:
March 2 Investment in Max AG’s 10,000
Cash 10,000
April 1 Cash (500/10,000 x $500,000) 25,000
Dividend income 25,000
Dec 31 No Journal
b. E2-8 Calculate investment balance four years after acquisition
Pam Corporation owns a 40 percent interest in the outstanding common stock of Sun
Corporation, having acquired its interest for $2,400,000 on January 1, 2016, when Sun’s
stockholders’ equity was $4,000,000. The fair value/book value differential was assigned to
inventories that were undervalued by $100,000 and sold in 2016, to equipment with a four-year
remaining life that was undervalued by $200,000, and to goodwill for the remainder. The
balance of Sun’s stockholders’ equity at December 31, 2019, is $5,500,000, and all changes
therein are the result of income earned and dividends paid.
Required: Determine the balance of Pam’s investment in Sun at December 31, 2019.
Answer:
Investment in Sun $2,400,000
BV of the interest acquires (40% x 4,000,000) ($1,600,000)
Total excess of cost over BV acquired $800,000
Assignment to identifiable Net Assets and Goodwill:
The FV/BV differential Interest acquired Amount assigned
Inventories 100,000 40% 40,000
Equipment 200,000 40% 80,000
Goodwill for the remainder $680,000
Excess FV over BV $800,000
Pam’s underlying equity in Sun $2,200,000
Goodwill 680,000
Investment balance Dec 31,2019 $2,880,000
c. P2-1 Computations for interim purchase (investee has a discontinued operations
loss)
Kuma Corporation paid $600,000 in cash for a 40 percent interest in Sachi Corporation on
April 1, 2016, when Sachi’s common stock was at $1,000,000 and the book value of its net
assets equaled fair value. During 2016, Sachi declared and paid dividends of $30,000 each
quarter on March 1, June 1, September 1, and December 1. Sachi’s net income in 2016 was
reported as follows:
Income from continuing operations $250,000
Less: Loss of discontinued operations (50,000)
Net income $200,000
Required: Determine the following items for Kuma:
1. Goodwill or gains on the bargain purchase
2. Income from Sachi for 2016
3. Investment in Sachi account balance at December 31, 2016
4. Kuma’s equity in Sachi’s net assets at December 31, 2016
5. The amount of discontinued operations loss that Kuma will show on December 31, 2016
Answer:
1. Goodwill/gain from bargain purchase
Cost investment 40% $600,000
BV acquired
Net asset Dec 31 $1,000,000
Income 50,000
Dividends paid Mar 15 (30,000)
BV Apr 1 40% $1,020,000 $480,000
Goodwill $192,000
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2. Income from Sachi 2016 = 40% x $200,000 x 12 = $60,000
3. Investment in Sachi at Dec 31, 2016
Cost investment $600,000
3
Sachi net income ($200,000 x 4 x 40%) 60,000
Dividends paid ($30,000 x 3 x 40%) (36,000)
Investment $624,000
4. Kuma’s equity in Sachi’s net assets at Dec 31, 2016
Total equity Dec 31 $1,000,000
Net income 2016 200,000
Dividends paid 2016 (120,000)
Total equity Dec 31, 2016 $1,080,000
Investment interest 40%
Equity in Sachi’s net assets Dec 31, 2016 $432,000
5. The amount of discontinued operations loss that Kuma will show on Dec 31, 2016
Loss of discontinued operations $50,000
Percent owned 40%
Discontinued operation loss $20,000
