| | Module 7 Problem-Solution Assignment: |
| | Problem 1 |
| | On January 1, 2011, the Travis Corporation purchased a 22% interest in Scott Company by procuring 5,000 shares of the 25,000 outstanding shares of common stock.
The acquisition price was $32.50 a share. On the date of this procurement, Scott Company’s net assets were defined as the following: |
| | The total liabilities has a book and fair value of $90,000
During 2011, Scott Company had earned income of $76,000 and paid dividends of
$16,000. The depreciated items have a useful life of 5 years remaining and no residual value |
| | Requirements: |
| | 1 | Prepare all the necessary journal entries on Travis’s books to record the acquisition and the events subsequent to the initial investments. |
| | Problem 2 |
| | Temperance Company owns stock in several like companies. Investments in some of these affiliates are accounted for as securities available for sale while some are accounted for using the equity method. |
| | Requirements: |
| | 2 | Use the information in Problem 2 and answer the following:
• What factors determine which method should be used?
• What events are recorded when the equity method is used?
• What events are recorded when the securities are accounted for as available for sale? |
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