On January 1, 2020, Commerce Crusaders purchased 2,500 of the 10,000 outstanding common shares of Snowmageddon Limited at a cost of $15 per share. On that date, the balance sheet of Snowmageddon Limited had the following relevant values:

			Fair
		Book	Market
Account		Value	Value	Difference
Current assets		$12,000	$12,000	$0
Depreciable capital assets		$88,000	$128,000	$40,000
net of accumulated depreciation
Goodwill		$0	??	??
Total		$100,000
Liabilities		$50,000	$50,000	$0
Common shares		$20,000	$20,000	$0
Retained earnings		$30,000	??
Total		$100,000

Additional information:

• The depreciable capital assets have a remaining useful life of 10 years.

• During the 2020 fiscal year, Snowmageddon Limited had net income of $45,000.

• During the year, Commerce sold to Snowmageddon inventory with a selling price of $20,000 and a cost of $12,000. The inventory had not been resold by year-end.

• During the 2020 fiscal year, Snowmageddon Limited paid total cash dividends to its common shareholders of $10,000 ($1.00 per share).

• Market value per share of Snowmageddon Limited at December 31, 2020 was $18.

Required:

1. You are to assume that Commerce Crusaders can exercise significant influence over Snowmageddon Limited and uses the equity method to account for its investment. Calculate Commerce’s goodwill on purchase of its investment in Snowmageddon. Prepare all necessary journal entries for Commerce Crusaders for the year ended December 31.

2. Assume that Commerce Crusaders accounts for its investment in Snowmageddon using the fair value through net income method (FV-NI). Prepare all necessary journal entries for Commerce Crusaders for the year ended December 31.

3. Show the December 31^st numbers under each of the equity and FV-NI methods for:

• Investment in Snowmageddon

• Investment Income (including any applicable changes in fair value)

Answer rating: 100% (QA)

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