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Ch+12+Pr+7 - Undervaluation Book value \$800 x 30 =\$240 of...

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Problem 12-7 Requirement 1 Purchase (\$ in millions) Investment in Lavery Labeling shares .......................................... 324 Cash ......................................................................................... 324 Net income Investment in Lavery Labeling shares (30% x \$160 million) .......... 48 Investment revenue ................................................................... 48 Dividends Cash (10 million shares x \$2) ............................................................. 20 Investment in Lavery Labeling shares ...................................... 20 Depreciation adjustment Investment revenue ([\$80 million x 30%] ÷ 6 years) ...................... 4 Investment in Lavery Labeling shares ...................................... 4

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Calculations: Investee Net Assets Difference Net Assets Purchased Attributed to: Cost \$324 Goodwill : \$60 Fair value: \$880 * x 30% =\$264
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Unformatted text preview: Undervaluation Book value: \$800 x 30% =\$240 of depr. assets: \$24 * [\$800 + 80] = \$880 Adjusting entry No entry Problem 12-7 (concluded) Requirement 2 Purchase (\$ in millions) Investment in Lavery Labeling shares. ......................................... 324 Cash . ........................................................................................ 324 Net income No entry Dividends Cash (10 million shares x \$2). ............................................................ 20 Investment revenue. .................................................................. 20 Adjusting entry Net unrealized holding loss on investments ([10 million shares x \$31] – \$324 million). ................................................ 14 Fair value adjustment. ............................................................... 14...
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