1. Business
  2. Accounting
  3. james acquired 40 of the outstanding voting shares of schott...

Question: james acquired 40 of the outstanding voting shares of schott...

Question details

James acquired 40% of the outstanding voting shares of Schott Co. on January 1, 2015 for $210,000 in cash when Schott’s owners’ equity was $400,000. One of the company’s buildings, that had a 20-year remaining life, was worth $100,000, even though its net book value was $60,000. Schott also had an unrecorded patent having a value of $85,000 that had a 10-year life. In 2015, Schott recorded net income of $60,000 and distributed a total cash dividend of $12,000. Its fortunes changed in 2016 when it recorded a $40,000 net loss, but the Board still paid $10,000 in dividends. This was a strategic investment and James began purchasing inventory from Schott right away. In 2015, Schott sold inventory with an original cost of $60,000 to James for $90,000. James had $15,000 of these goods in inventory (at the selling price) at December 31, 2015, but it was all sold in 2016. In 2016, Schott sold another $80,000 of inventory to James and had a gross profit on the sale of 37.5%. All but 30% of this was sold to third parties during the year.

Required: 1. Record the entries James needs in 2015 and 2016 in conjunction with this investment. 2. What is the balance in the investment account at December 31, 2016?

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution