Recording Investments Under the Equity Method
Response to the following problem:
The Harper Corporation acquired 80,000 of the 200,000 outstanding shares of the Moore Corporation on April 1, 2010, for $400,000 and obtained significant influence. The following information concerning the Moore Corporation is available on the date of acquisition:
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Book value
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Fair Value
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Depreciable assets (remaining life 15 years)
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$ 600,000
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$ 700,000
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Other assets
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500,000
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4 50,000
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Total
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$ 1,100,000
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$1,150,000
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Liabilities
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$ 300,000
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$ 320,000
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Common sock
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250,000
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|
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Retained earnings
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550,000
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Total
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$1,100,000
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Subsequently, Moore Corporation paid a cash dividend of $40,000 on August 31, 2010, and reported annual income from operations of $125,000 and extraordinary income (earned in the third quarter) of $30,000 on December 31, 2010.
Required:
1. Prepare journal entries for Harper to record the preceding information.
2. What is the balance in Harper's investment account on December 31, 2010? (Show all computations.)
3. Prepare Harper's net cash flow from operating activities section of its 2010 statement of cash flows under the indirect method, assuming the equity investment income is the only income Harper reports. Ignore income taxes.