Northwest Paperboard Company, a paper and allied products manufacturer, was seek

Question

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2016, for $470 million.

At the date of purchase, the book value of Vancouver's net assets was $810 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $10 million for the inventory and by $15 million for the plant facilities.

The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2016.

Vancouver reported net income of $210 million for the year ended December 31, 2016. Vancouver paid a cash dividend of $30 million.

Prepare all appropriate journal entries related to the investment during 2016.

What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2016?

What amount should Northwest report in its balance sheet as its investment in Vancouver?

What should Northwest report in its statement of cash flows regarding its investment in Vancouver?

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2016, for $470 million.

Explanation / Answer

Part 1: Prepare all appropriate journal entries related to the investment during 2013.

Investment in Vancouver shares 470,000,000

Cash 470,000,000

Cash (40% x 30,000,000) 12,000,000

Investment in Vancouver shares 12,000,000

Investment in Vancouver shares 84,000,000

Investment revenue 84,000,000 (40% x 210,000,000)

Investment revenue 400,000

Investment in Vancouver shares 400000 40% x (15,000,000 ÷ 15)

Investment revenue (40% x 10,000,000) 4,000,000

Investment in Vancouver shares 4,000,000

part b)

$79600,000: (84,000,000 share of income – 400,000 depreciation – 4,000,000 inventory sale)

partc)

Cost   470,000,000 Dividends 84,000,000 Share of Income 12,000,000 Depreciation adj   40,000,000 Inventory adj 4,000,000

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