omework Help Save&Exit Sub Check my wor Harper, Inc. acquires 40 percent of the
ID: 2328242 • Letter: O
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omework Help Save&Exit Sub Check my wor Harper, Inc. acquires 40 percent of the outstan book value of Kinman's net assets on that date was $625,000, although one of the company's buildings, with a $70.800 amount, was actually worth $135,550. This building had a 10-year remaining ife. Kinman owned a royaity agreement with a 20-year remaining life that was undervalued by $147,500 Kinman sold inventory with an original cost of $700 to Harper during 2017 at a price of $11,000. Harper still held $18.750 (transfer price) of this amount in inventory as of December 31, 2017. These goods are to be sold to outside parties during 2018. Kinman reported a $51,800 net loss and a $26,600 other comprehensive loss for 2017 The company still manages to a $15,000 cash dividend during the year Ouring 2018, Kinman reported a $57.200 net income and declared and pald a cash dlvidend of $17,000. It made additional inventory sales of $120,000 to Harper during the period. The original cost of the merchandise was $75,000. All but 30 percent of this inventory had been resold to outside parties by the end of the 2018 fiscall year Prepare all journal entries for Harper for 2017 and 2018 in connection with this investment. Assume that the equity method is applied (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations) Journal entry worksheet Record the initial investment Prev4of 0 Next> 20 P11Explanation / Answer
WN Royalty Agreement Building Excess Amt ($135500-$70800) $64,700 $147,500 Life 10 20 Amortisation $6,470 $7,375 40% Acquisition $2,588.0 $2,950.0 Total $5,538.0 Inventory 2017 2018 Remaining at yr end $18,750 $36,000 Profit Margin ($33300/$111000) 0.3 ($45000/$120000) 0.375 Unrealised GP $5,625 $13,500 40% Acquisition $2,250.0 $5,400.0 Journal Entries Date Account Title Dr Amount Cr Amount 1/1/2017 Investment in Kinman Co $334,900 To Cash $334,900 to record investment During 2017 Dividend Receivable $6,000 To Investment in Kinman Co $6,000 To record dividend Receivable ($15000*40%) During 2017 Cash $6,000 To Dividend Receivable $6,000 to record the dividend received 31/12/17 Equity in Kinman Loss $20,720 Other Comprehensive loss $10,640 To Investment in Kinman Co $31,360 Recognised loss $51800*.4 31/12/17 Equity in Kinman (Amortisation) $5,538.0 To Investment in Kinman Co $5,538.0 Amortisation as per WN 31/12/17 Equity in Kinman Income $2,250.0 To Investment in Kinman Co $2,250.0 unrealised profit as per WN 2018 Dividend Receivable $6,800 To Investment in Kinman Co $6,800 dividend receivable during 2018 recorded($17000*.4) cash $6,800 To Dividend Receivable $6,800 dividend for 2018 is recorded 31/12/2018 Investment in Kinman $22,280 To Equity in Kinman Co Income $22,280 income for yr 2018 is recorded ($57200*.4) 31/12/2018 Equity in Kinman Co Income $5,538.0 To Investment in Kinman $5,538.0 amortisation as per wn 31/12/2018 Investment in Kinman Co $2,250.0 To Equity in Kinman Income $2,250.0 last yr unrealised profit 31/12/2018 Equity in Kinman Co $5,400.0 To Investment in Kinman $5,400.0 unrealised profit of 2018 recorded as per WN Prob 1-16 calculation of Goodwill Acquistion Price $83,400 BV (Asset-Liabilities)*40% $66,800 Excess Payment $16,600 value of patent in excess of BV ($36500-$12500)*40% $9,600 Goodwill $7,000 Amortisation Patent -$24000/6 $4,000 Goodwill Total Amortization $4,000 Calculation of Value of Investment Acquistion Price $83,400 Add Net Income -2017-$42500*40% $17,000 Less Dividend -2017-$14000*40% ($5,600) Less Patent Amortisation ($4,000) Value of Investment on 31st Dec $90,800 2017 Add Net Income 2018-$72700*40% $29,080 Less Dividend-2018-$19000*40% ($7,600) Less Patent Amortisation ($4,000) Value of Investment on 31st Dec $108,280 2018 b Dividend -2018 -$19000*40% $7,600 Increase in Fair vale $11,480 ($105880-$94400) Income from investment under fair $19,080 value method-2018
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