Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada.

Question:

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2011, for $400 million.

At the date of purchase, the book value of Vancouver's net assets was $775 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $5 million for the inventory and by $20 million for the plant facilities.

The estimated useful life of the plant facilities is 16 years. All inventory acquired was sold during 2011.

Vancouver reported net income of $140 million for the year ended December 31, 2011. Vancouver paid a cash dividend of $30 million.

Required:

1. Prepare all appropriate journal entries related to the investment during 2011.

2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2011?

3. What amount should Northwest report in its balance sheet as its investment in Vancouver?

4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...