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Working:

Calculation of Net Asset Value of Javier CA's

Javier CA's net assets at Jan 1 $1,200,000

Income for the first quarter ($100,000*3/12) $25,000

Javier CA's Net Assets at March 31 $1,225,000

Wero CA and Its 30% owned equity investee - Javier CA

Investment in Javier CA $450,000

Book Value of the interest acquired (30%*$1,225,000 Net Asset Value at Mar 31 ) $367,500

Excess of Cost over book value acquired $82,500

 Undervalued % Interest Amount
(Overvalued) Acquired Assigned

inventory - $100,000 30% - $30,000

Equipment $300,000 30% $90,000

Total amount assigned to identifiable net

$60,000
assets

Remainder assigned to goodwill $22,500

Excess of Cost over book value acquired $82,500

Journal Entries in WERO CA's Book:

Date General Journal Debit Credit

March. 31 Investment in Javier CA $450,000

Cash $450,000

July.1 Cash $15,000

Investment in Javier CA $15,000

(To record dividend received $50,000*30%)

Dec.31 Investment in Javier CA $45,000

Income from Javier CA (Refer note 1) $45,000

(To recognize investment income from Javier CA)

Note 1 – Recognize investment income from Javier CA

30% of Javier CA's $100,000 Net Income $30,000

Plus: Excess allocated to inventories ($100,000*30%) $30,000

Less: Excess allocated to equipment ($300,000*30%/6 years) - $15,000

Income from Javier CA $45,000

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