BIP Corporation paid $780,000 for a 30 percent interest in Cow Corporation on December 31, 2011, when

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BIP Corporation paid $780,000 for a 30 percent interest in Cow Corporation on December 31, 2011, when Cow's equity consisted of $2,000,000 capital stock and $800,000 retained earnings. The price paid by BIP reflected the fact that Cow's inventory (on a FIFO basis) was overvalued by $200,000. The overvalued inventory items were sold in 2012.
During 2012 Cow paid dividends of $400,000 and reported income as follows (in thousands):
Income before extraordinary items ...................... $680
Extraordinary loss (net of tax effect) .................... (80)
Net income ................................................. $600
Required
1. Prepare all journal entries necessary to account for BIP's investment in Cow for 2012.
2. Determine the correct balance of BIP's Investment in Cow account at December 31, 2012.
3. Assume that BIP's net income for 2012 consists of $4,000,000 sales, $2,800,000 expenses, and its investment income from Cow. Prepare an income statement for BIP Corporation for 2012.
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Advanced Accounting

ISBN: 978-0133451863

12th edition

Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith

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