Problem
On January 1, Year 1, Superman Corporation purchased 25% of the common shares of Spiderman Limited for $2,500. On that date, the net assets of Spiderman had a carrying value of $8,800 and all of the individual assets of Spiderman had fair values that were equal to their carrying values except for a patent that Spiderman had developed but was not recorded on their books. The fair value of the patent is $200 with a five-year useful life.
The following relates to Spiderman since the acquisition date:
|
Year
|
Net Income
|
Dividends Paid
|
|
Year 1
|
$520
|
$280
|
|
Year 2
|
500
|
160
|
In Year 2, there was a goodwill impairment loss equal to 10% of the goodwill created at the acquisition date. On January 15, Year 3, because of negative market indicators, Superman's investment in Spiderman was tested for impairment and it was determined that the recovery amount was $1,800.
Task
Prepare all the journal entries that Superman should make regarding this investment in Spiderman for Year 1, Year 2 and on January 15, Year 3 assuming the following two independent cases:
i. Superman owns 25% of the common shares of Spiderman
ii. Superman owns 25% of the common shares of Spiderman and there is only one other shareholder who owns 75% of the Spiderman common shares (5 marks) Round to the nearest dollar. Show all work and schedules.