Part A: Banana Corporation sought to diversify its operations and purchased a 25
ID: 2606812 • Letter: P
Question
Part A: Banana Corporation sought to diversify its operations and purchased a 25% interest in Walnut Co., on January 1, 2017 for $330,000 cash. On that date, Walnut's stockholders' equity included $205,000 of $5 par value common stock, $250,000 of additional paid in capital, and $350,000 retained earnings. On this date, it was determined that Walnut's building had a fair value of $140,000 more than its book value and a remaining useful life of 15 years. Any additional excess of the purchase price is considered goodwill related to the investment. During the 2017 and 2018, Walnut reports the following information about its operations: 2017 2018 Net Income 110,000 120,000 Dividends 10,000 | 12,000 Market Price (12/31) $ 38.50 $ 37.25 * Market price is the trading price of one share of Walnut's common stock. Required: (Assume Banana Corporation has significant influence over Walnut Co.) 1. Prepare all of the journal entries Banana Corporation makes during 2017 and 2018 to record its investment activities for Walnut Co. (Use the space provided on the back of this page for your journal entries.) What amount would Banana show on its December 31, 2018 balance sheet for Investment in Walnut? (Show your detailed and labeled calculations.) 3. What amount would Banana show as its Income from Walnut on its income statement for the year ended December 31, 2017?Explanation / Answer
Journal Entries for PART A-1
$3000
2. Value of Investmet as on 31-12-2018 =$387500
3. Income from Investment on its income statement for 31-12-2017 = $2500
Date Account Debit Credit 01-01-2017 Investment In Welnuts A/c $330000 To CAsh $ 330000 31-12-2017 Cash A/c $2500 To Dividends $2500 31-12-2017 Investment in Welnuts A/c $27500 To Income ffrom Investment $27500 31-12-2018 Cash A/c $3000 To Dividends$3000
31-12-2018 Investment in Welnuts A/c $30000 To Income ffrom Investment $30000