Question

Fizer Pharmaceutical paid $81 million on January 2, 2021, for 3 million shares of Carne Cosmetics...

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.

  • The book value of Carne's net assets was $205 million.
  • The fair value of Carne's depreciable assets exceeded their book value by $45 million. These assets had an average remaining useful life of nine years.
  • The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.


Required:
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)).
($ in millions) Investee Net Assets Ownership Interest Net Assets Purchased Difference Attributable to:
Purchase Price $81
Fair Value Carne's assets x % = $0
Book Value Carne's assets x % = $0
Depreciation adjustment: Years Adjustment
Investment revenue $0 / =
  • prepare the appropriate journal entries related to the investment during 2021.
Business   Accounting   
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Answer #1
Compute the undervaluation of Asset as follows ( in millions)
Investee Net Asset Ownership Interest = Net Asset Purchased Difference Attributable to
Purchase Price 81
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)
Date particulars Debit Credit
1 Investment in Carne Cosmetic 81
Cash 81
( To record Purchase of Investment)
2 Investment in Carne Cosmetic 8
Investment Revenue (40*20%) 8
( To record share of income)
3 Cash (3*2) 6
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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