Question

P6-8 On January 1, 2011, Stone acquired 30% of the shares of Lake for $75,750. At this date, the equity of Lake consisted of:
Share capital—100,000 shares .... $100,000
Retained earnings ......... 90,000
The carrying amounts and fair values of the assets of Lake were as follows:
Both plant and equipment were expected to have a further five-year life, with benefits being received evenly over those periods. The plant was sold on July 1, 2013. At January 1, 2011, Lake had not recorded an internally generated trademark that Stone considered to have a fair value of $50,000. This intangible asset was considered to have an indefinite useful life.
Additional information:
1. The following profits were recorded by Lake:
For the 2011 period ....... $20,000
For the 2012 period ....... 25,000
For the 2013 period ....... (30,000)
2. Other dividends declared or paid since January 1, 2011, are:
• $8,000 dividend declared in December 2011, paid in February 2012
• $6,000 dividend declared in December 2012, paid in February 2013
• $5,000 dividend paid in June 2013
• $8,000 dividend declared in December 2013, expected to be paid in February 2014.
3. On January 1, 2012, Stone acquired an additional 5% of shares in Lake for $17,000. The fair values of the identifiable net assets have remained the same as those originally established in 2011 less any amortization.
4. Both companies pay tax at the rate of 30%.
Required
(a) Prepare the Investment in Lake account under the equity method at December 31, 2013.
(b) Calculate the share of profit or loss in Lake under the equity method for each of the years 2011, 2012, and 2013.


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  • CreatedJune 09, 2015
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