On January 4, 2018, Runyan Bakery paid $324 million for 10
million shares of Lavery Labeling Company common stock. The
investment represents a 30% interest in the net assets of Lavery
and gave Runyan the ability to exercise significant influence over
Lavery's operations. Runyan chose the fair value option to account
for this investment. Runyan received dividends of $2.00 per share
on December 15, 2018, and Lavery reported net income of $160
million for the year ended December 31, 2018. The market value of
Lavery's common stock at December 31, 2018, was $31 per share. On
the purchase date, the book value of Lavery's net assets was $800
The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.
The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.
1-a. Prepare all appropriate journal entries related to the investment during 2018, assuming Runyan accounts for this investment under the fair value option, and accounts for the Lavery investment in a manner similar to what it would use for securities for which there is not significant influence.
(Record the purchase of Lavery Labeling stock for $324 million)
( Record Runyan Bakery's share of Lavery's $160 million net income)
(Record the receipt of cash dividends of $2 per share on 10 million shares)
(Record any necessary entry related to depreciation. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million)
(Record any necessary adjusting entry to correctly report the investment on the balance sheet. The market value of Lavery's common stock at December 31, 2018 was $31 per share)
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