Question

On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...

On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $400 million cash. At the date of acquisition of the stock, Lake's net assets had a fair value of $700 million. Their book value was $600 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2018, was $200 million. During 2018, Lake declared and paid cash dividends of $30 million. The buildings have a remaining life of 10 years. Required: 1. Complete the table below and prepare all appropriate journal entries related to the investment during 2018, assuming Cameron accounts for this investment by the equity method. 2. Determine the amounts to be reported by Cameron.

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Answer #1
1 (in millions)
Purchase Investment in Lake $400
Cash $400
Income Investment in Lake $40
Investment Revenue $40
Dividends Cash $6
Investment in Lake $6
($30 x 20%)
Additional Dep Investment Revenue $1
Investment in Lake $1
Working
Fair Value ($700*20%) $140
Book Value ($600*20%) $120
Difference $20
Attributable to Depreciable Assets $10
Additional Depreciation = 10/10 = 1
2 Investment in Lake $433
Investment Revenue $39
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