Matrix, Inc. acquired 20% of Neo Enterprises for $500,000 on January 1, 2015. The fair value and book value of 20% of Neo's identifiable net assets was $500,000 and $480,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2015 Neo recognized net income of $200,000 and paid dividends of $100,000. Neo had a total fair value of $528,000 as of December 31, 2015. Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as (1) an equity method investment, and (2) elects the fair-value option. Show entries for the purchase of the investment, recognition of net income, receipt of dividends, and adjustment at year-end, as appropriate. Indicate whether gains or losses (realized, unrealized) are reported on the income statement or other comprehensive income.

Matrix, Inc. acquired 20% of Neo Enterprises for $500,000 on January 1, 2015. The fair value and book value of 20% of Neo's identifiable net assets was $500,000 and $480,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2015 Neo recognized net income of $200,000 and paid dividends of $100,000. Neo had a total fair value of $528,000 as of December 31, 2015. Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as (1) an equity method investment, and (2) elects the fair-value option. Show entries for the purchase of the investment, recognition of net income, receipt of dividends, and adjustment at year-end, as appropriate. Indicate whether gains or losses (realized, unrealized) are reported on the income statement or other comprehensive income.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter7: Corporations: Reorganizations

Section: Chapter Questions

Problem 42P

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Matrix, Inc. acquired 20% of Neo Enterprises for $500,000 on January 1, 2015. The fair value and book value of 20% of Neo's identifiable net assets was $500,000 and $480,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2015 Neo recognized net income of $200,000 and paid dividends of $100,000. Neo had a total fair value of $528,000 as of December 31, 2015. Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as (1) an equity method investment, and (2) elects the fair-value option. Show entries for the purchase of the investment, recognition of net income, receipt of dividends, and adjustment at year-end, as appropriate. Indicate whether gains or losses (realized, unrealized) are reported on the income statement or other comprehensive income. Date Accounts Debit Credit Equity Method Investment in Neo…
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