On January 1, 2020, Defillo Corporation purchased 40 percent (80,000 shares) of the common stock of...

 

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On January 1, 2020, Defillo Corporation purchased 40 percent (80,000 shares) of the common stock of Casals, Inc., for $1,200,000 in cash and began to use the equity method for the investment. The price paid represented a $300,000 payment in excess of the book value of Defillo's share of Casals' underlying net assets. Defillo was willing to make this extra payment because of a recently developed patent held by Casals with a 15-year remaining life. All other assets were considered appropriately valued on Casals' books. Casals declares and pays a $250,000 cash dividend to its stockholders each year on September 15. Casals reported net income of $800,000 in 2020 and $750,000 in 2021. Each income figure was earned evenly throughout its respective years. On July 1, 2021, Defillo sold 20,000 shares of its 80,000 shares in Casals for $350,000 in cash. Although it sold this interest, Defillo maintained the ability to significantly influence Casals' decision- making process. Required: (Show all your calculations) A. Prepare all necessary journal entries for Defillo's investment in Casals for the year 2020. B. Prepare all necessary journal entries for Defillo's investment in Casals for the year 2021. C. Determine the balances for the following accounts in Defillo's books at the dates specified: 12/31/2020 Investment in Casals Equity in subsidiary earnings 9/15/2020 6/30/2021 12/31/2021 On January 1, 2020, Defillo Corporation purchased 40 percent (80,000 shares) of the common stock of Casals, Inc., for $1,200,000 in cash and began to use the equity method for the investment. The price paid represented a $300,000 payment in excess of the book value of Defillo's share of Casals' underlying net assets. Defillo was willing to make this extra payment because of a recently developed patent held by Casals with a 15-year remaining life. All other assets were considered appropriately valued on Casals' books. Casals declares and pays a $250,000 cash dividend to its stockholders each year on September 15. Casals reported net income of $800,000 in 2020 and $750,000 in 2021. Each income figure was earned evenly throughout its respective years. On July 1, 2021, Defillo sold 20,000 shares of its 80,000 shares in Casals for $350,000 in cash. Although it sold this interest, Defillo maintained the ability to significantly influence Casals' decision- making process. Required: (Show all your calculations) A. Prepare all necessary journal entries for Defillo's investment in Casals for the year 2020. B. Prepare all necessary journal entries for Defillo's investment in Casals for the year 2021. C. Determine the balances for the following accounts in Defillo's books at the dates specified: 12/31/2020 Investment in Casals Equity in subsidiary earnings 9/15/2020 6/30/2021 12/31/2021

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Solution a Journal entries for the year 2020 Date January 1 Septe... View the full answer