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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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