Fizer Pharmaceutical paid $81 million on January 2, 2021, for 3
million shares of Carne Cosmetics common stock. The investment
represents a 20% interest in the net assets of Carne and gave Fizer
the ability to exercise significant influence over Carne’s
operations. Fizer received dividends of $2 per share on December
21, 2021, and Carne reported net income of $40 million for the year
ended December 31, 2021. The fair value of Carne’s common stock at
December 31, 2021, was $31.50 per share.
Complete the table below and prepare the appropriate journal entries related to the investment during 2021.
Complete the table below. (Enter your answers in millions, (i.e., 10,000,000 should be entered as 10)).
|Compute the undervaluation of Asset as follows ( in millions)|
|Investee Net Asset||Ownership Interest||=||Net Asset Purchased||Difference||Attributable to|
|Fair Value of C Asset (205+45)||250||X||20%||=||50||81-50 = 31||Goodwill|
|Book Value of C Asset||205||X||20%||=||41||50-41 = 9||Undervaluation of Asset|
|Journal Entry in the Books of Fizer Pharmaceutical ( in Million)|
|1||Investment in Carne Cosmetic||81|
|( To record Purchase of Investment)|
|2||Investment in Carne Cosmetic||8|
|Investment Revenue (40*20%)||8|
|( To record share of income)|
|Investment in Carne Cosmetic||6|
|( To record Dividend received)|
|4||Investment Revenue ($9million /9 Year)||1|
|Investment in Carne Cosmetic||1|
|(To Record depreciation adjustment for Undervaluation )|
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