Nama: Bryan Luke

NIM: 041911333013
Kelas: A-SP

Ex 2-3 ppt
Journal entries for investment under cost method
On March 2, Klaus AG acquired 500 of Max AG’s 10,000 outstanding shares with a par
value of $10 for $10,000 in cash. Klaus AG didn’t have any significant influence on Max
AG in this transaction.
On April 1, Max AG declared and paid dividends of $500,000. Klaus AG reported income
of $1,000,000 at the end of the period
Prepare the necessary journal entries in Klaus AG’s book from the above information.
 March 2
Investment Max AG 10,000
Cash 10,000
 April 1
Cash 25,000
Dividend Income 25,000
(500,000 x 500 / 10,000) = 25,000
Ex 2-8 pg. 63, ppt
Calculate investment balance four years after acquisition
Pam Corporation owns a 40 percent interest in the outstanding common stock of Sun
Corporation, having acquired its interest for $2,400,000
On January 1, 2016, when Sun’s stockholders’ equity was $4,000,000. The fair value/book
value differential was assigned to inventories that were undervalued by $100,000 and sold in
2016, to equipment with a four-year remaining life that was undervalued by $200,000, and to
goodwill for the remainder. The balance of Sun’s stockholders’ equity at December 31,
2019, is $5,500,000, and all changes therein are the result of income earned and dividends
paid.
Determine the balance of Pam’s investment in Sun at December 31, 2019.
Cost of 40% common interest in Sun (FV) 2,400,000
Book Value Acquired: (1,600,000)
4,000,000 x 40% = 1,600,000

Excess Fair value over book value 800,000

Assigned to Amount
Inventories 40,000
40% x 100,000
Equipment 80,000
40% x 200,000
Goodwill 680,000
800,000 – 40,000 – 80,000

Excess Fair value over book value 800,000

Share changes in Sun SE 600,000
((5,500,000 – 4,000,000) x 40%) = 600,000
Less:
Assigned to Inventories (40,000)
Assigned to Equipment (80,000)

Increase in investment 480,000

Common stock 2,400,000
Investment in Sun at December 31, 2019 2,880,000
Other Method:
Underlying equity in Sun SE 2,200,000
(5,500,000 x 40%) = 2,200,000
Goodwill 680,000

Investment in Sun at December 31, 2019 2,880,000

P 2-1
Computations for interim purchase (investee has a discontinued operations loss)
Kuma Corporation paid $600,000 in cash for a 40 percent interest in Sachi Corporation on
April 1, 2016, when Sachi’s common stock was at $1,000,000 and the book value of its net
assets equaled fair value. During 2016, Sachi declared and paid dividends of $30,000 each
quarter
On March 1 (Q1), June 1 (Q2), September 1 (Q3), and December 1(Q4). Sachi’s net income
in 2016 was reported as follows:
Income from continuing operations $250,000
Less: Loss of discontinued operations (50,000)
Net income $200,000
Determine the following items for Kuma:
1. Goodwill or gains on the bargain purchase
Cost of 40% common interest in Sachi 600,000
Book value acquired:
Common stock 1,000,000
Income Q1 200,000 x ¼ 50,000
Dividend Paid Q1 (30,000)
Book Value at April 1 1,020,000

Interest 40% 408,000

Goodwill 192,000
2. Income from Sachi for 2016
Income from continuing operations = 250,000 x ¾ x 40% = 75.000
Loss of discontinued operation 20,000
Income from Sachi 2016 55,000
3. Investment in Sachi account balance at December 31, 2016
Investment Cost 600,000
Income from Sachi – loss of discontinued operation 55,000
75,000 – 20,000
Less:
Dividends (30,000 x 3 x 40%) (36,000)

Investment in Sachi December 31 619,000

4. Kuma’s equity in Sachi’s net assets at December 31, 2016
Sachi SE 1,000,000
Net Income 200,000
Dividends (120,000)
Sachi’s SE Dec 2016 1,080,000
Investment Interest 40%

Equity in Sachi Net Assets 432,000

5. The amount of discontinued operations loss that Kuma will show on December 31, 2016
50,000 x 40% = 20,000