Investment in Associate with significant influence
In early January 2017, Julius Inc., a private enterprise that applies ASPE, purchased 40% of the common shares of Kapital Corp. for $484,000. Janus was now able to exercise considerable influence in decisions made by Kaptial’s management. Kaptial Corp.’s statement of financial position reported the following information at the date of acquisition:
Assets not subject to being amortized $242,000 Assets subject to amortization (10 years average life remaining) 732,000 Liabilities 136,000
Additional information: 1. Both the carrying amount and fair value are the same for assets that are not subject to amortization and for the liabilities. 2. The fair value of the assets subject to amortization is $885,000. 3. The company amortizes its capital assets on a straight-line basis. 4. Kaptial reported net income of $192,000 and declared and paid dividends of $132000 in 2017.
a) Prepare the journal entry to record Janus’s investment in Kaptial Corp. Assume that any unexplained payment is goodwill. b) Assuming Janus applies the equity method to account for its investment in Kaptial, prepare the journal entries to record Janus’ equity in the net income and the receipt of dividends from KaptitalCorp. in 2017. c) Assume the same factors as above and in part (b), except that Kaptial’s net income included a loss on discontinued operations of $45,000 (net of tax). Prepare the journal entries necessary to record Julius’s equity in the net income