On January 4, 2021, Runyan Bakery paid $344 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $4.50 per share on December 15, 2021, and Lavery reported net income of $250 million for the year ended December 31, 2021. The market value of Lavery's common stock at December 31, 2021, was $32 per share. On the purchase date, the book value of Lavery's identifiable net assets was $900 million and: The fair value of Lavery's depreciable assets, with an average remaining useful life of seven years, exceeded their book value by $70 million. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: 1. Prepare all appropriate journal entries related to the investment during 2021, assuming Runyan accounts for this investment by the equity method. 2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest.

1. Dr Investment in LL $344

Cr Cash $344

Dr Investment in LL $75

Cr Investment Revenue $75

Dr Cash $45

Cr Investment in LL $45

2. Dr Investment in LL $344

Cr Cash $344

Dr Cash $45

Cr Investment in LL $45

Dr Net Unrealized loss -OC1 $24

Cr Fair value adjustment $24

Explanation:

1.

Preparation of the Journal entry to record the invoice made from 10million shares

Dr Investment in LL $344

Cr Cash $344

(To record the invoice made from 10million shares)

Preparation of the Journal entry to record the share in net income

Dr Investment in LL $75

($250×30%)

Cr Investment Revenue $75

(To record the share in net income)

Preparation of the Journal entry to record the dividend income

Dr Cash $45

(10×$4.50 per share)

Cr Investment in LL $45

(To record the dividend income)

2.

Preparation of the Journal entry to record the invoice made from 10million shares

Dr Investment in LL $344

Cr Cash $344

(To record the invoice made from 10million shares)

Preparation of the Journal entry to record the dividend income

Dr Cash $45

(10×$4.50 per share)

Cr Investment in LL $45

(To record the dividend income)

Preparation of the Journal entry to record the adjusting entry

Dr Net Unrealized loss -OC1 $24

(10×$32 per share)-$344

(320-344=-$24)

Cr Fair value adjustment $24

(To record the adjusting entry)

answer; depth;

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