Q12P. On January 3, 2016, Martin Compa... [FREE SOLUTION]

Chapter 22: Q12P. (page 1321)

On January 3, 2016, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Martin鈥檚 purchase.
The fair value of Martin鈥檚 investment in Renner securities is as follows: December 31, 2016, $560,000, and December 31, 2017, $515,000. On January 2, 2018, Martin purchased an additional 30% of Renner鈥檚 stock for $1,545,000 cash when the book value of Renner鈥檚 net assets was $4,150,000. The excess was attributable to depreciable assets having a remaining life of 8 years. During 2016, 2017, and 2018, the following occurred.
Renner Dividends Paid by
Net Income Renner to Martin
2016 $350,000 $15,000
2017 450,000 20,000
2018 550,000 70,000
Instructions On the books of Martin Company,
prepare all journal entries in 2016, 2017, and 2018 that relate to its investment in Renner Corp., reflecting the data above and a change from the fair value method to the equity method.

Expert verified

All the journal entries for the years 2016, 2017, and 2018 are passed in steps 1, 2, and 3.

Date	Particulars	Debit ($)	Credit ($)
03/01/2016	Equity Investments	500,000
	Cash		500,000
	(Being investment purchased)

31/12/2016	Cash	15,000
	Dividend Revenue		15,000
	(Being Dividend Revenue Recorded)

31/12/2016	Fair value adjustment	60,000
	Unrealized Holding Gain or loss- Income		60,000
	(Being increase in the value of investment recorded)

Date	Particulars	Debit ($)	Credit ($)
31/12/2017	Cash	20,000
	Dividend Revenue		20,000
	(Being Dividend Revenue Recorded)

31/12/2017	Unrealized Holding Gain or Loss- Loss	45,000
	Fair value adjustment		45,000
	(Being a Decrease in the value of investment recorded)

Date	Particulars	Debit ($)	Credit ($)
02/01/2018	Equity Investment (Renner)	1,590,000
	Cash		1,545,000
	Retained Earnings		45,000
	(Purchase of investment)
		500,000
02/01/2018	Equity Investment (Renner)		500,000
	Equity Investment
	(Being reclassification of investment into equity method)

02/01/2018	Retained Earnings	15,000
	Fair Value Adjustment		15,000
	(Being Elimination of fair value accounts)

31/12/2018	Equity Investment (Renne)	220,000	220,000
	Investment Revenue (550,000*40%)
	(Being income recorded)

31/12/2018	Cash	70,000
	Equity Investment (Renne)		70,000
	(Being cash dividend received recorded)

Unlock Step-by-Step Solutions & Ace Your Exams!

Over 30 million students worldwide already upgrade their learning with 91影视!

All the tools & learning materials you need for study success - in one app.

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.