Question
Rogers, Inc., acquires 15% of Procter Corporation on January 1, 2020, for $70,000. During 2020, Procter...
Rogers, Inc., acquires 15% of Procter Corporation on January 1, 2020, for $70,000. During 2020, Procter reported net income of $180,000 and paid total dividends of $40,000. At the year end of 2020, the market value of this 15% investment indicates the value of $68,000. On January 1, 2021, Rogers purchased an additional 30% of Procter for $310,000. During 2021, Procter reported net income of $300,000 and paid dividends of $40,000. a. Prepare the January 1, 2021 entry to adjust the Equity Investment account for the additional acquisition on that date; what is the investment balance? b. Compute the balance in the Equity Investment account at December 31, 2021 (assuming there is no amortization expense since the book value of Procter is not given).
Answers
Additional Investment made by Rogers Inc Convert it investment in Procter into companies Associates
Balance of Equity as on 01-01-2021
Opening Balance $ 70000 + Purchase Value $ 310000 = $ 380000 ( Assumed that company carries value Investment at Book Value
and Value will be same at End of year as assumed that company value investment at Book Value
2. Companies Measure Investment at Fair Value:
Opening Balance $ 70000 - $ 2000 ( Fair Value Loss ) + $ 21000 ( Share in Distribute Profit) = $ 89000
Add : Purchase Value of Equity $ 310000
Value as on 1.1.2021 $ 399000
Closing Value of Investment $ 399000+ $ 117000 = $ 516000
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