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, 2018, for $540 million. At the date of purchase, the book value of Vancouver's net assets was $845 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 $5 million for the inventory and by $30 million for the plant facilities. The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2018. Vancouver reported net income of $160 million for the year ended December 31, 2018. Vancouver paid a cash dividend of $50 million.

Required: Prepare all appropriate journal entries related to the investment during 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

1. Prepare all appropriate journal entries related to the investment during 2018

a. Record the entry related to the purchase

. b. Record the entry related to the net income.

c. Record the entry related to the dividends.

d. Record the entry related to the inventory adjustment.

e. Record the entry related to the depreciation adjustment.

2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018?

a. Income statement amount …….. millions?

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

a. Balance sheet amount ……. Millions?

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

a. Operating cash flow

b. Investing cash flow

Explanation / Answer

1.

2.

Income statement = Dividend received - inevntory adjustment - PPE adjustment = 64-2-0.8 = 61.20 million

3.

Balance sheet = 540+64-20-2-0.8 = 581.20 million

4.

a. Operating cash flow = Dividend received in cash = 20 million

b. Investing cash flow = payment for investing in Vancouver T&M shares = 540 million

Particulars Dr. Cr. a. Investment in Vancouver T&M shares 540     Cash 540 b. Investment in Vancouver T&M shares 64      Investment revenue (160*0.4) 64 c. Cash (50*0.4) 20      Investment in Vancouver T&M shares 20 d. Investment revenue (5*0.40: as all sold in CY) 2      Investment in Vancouver T&M shares 2 e. Investment revenue ((30*0.40)/15) 0.8      Investment in Vancouver T&M shares 0.8

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