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Equity Method homework 2 solution

# Equity Method homework 2 solution - Equity Method 2nd...

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Equity Method 2nd homework Facts in the case Investment date 1/1/2011 Jenkins shares purchased 3,000 Percentage ownership 30% Balance sheet for Jenkins on investment date (\$000): Assets Book Fair Book Fair Cash \$4,842 \$4,842 A/P \$22,398 \$22,149 Investments 45,166 41,682 L-T Debt 52,994 52,994 Inventory 22,897 27,453 \$75,143 72,895 75,063 Cont. Capital 68,184 Ret. Earnings 2,224 Total assets \$145,800 \$149,040 Total L&E \$145,800 Jenkins sold most of its beginning inventory. Jenkins carried the sold inventory on its books at \$20,108 and it had a fair value of \$23,624 on 1/1/2011. Jenkins sold the inventory for \$24,000. We can divide Jenkins's inventory into 3 parts.: 1/1/2011 1/1/2011 Book Fair Beginning inventory sold in 2011 \$20,108 \$23,624 Beginning inventory not sold in 2011 2,789 3,829 Beginning inventory total (as shown in Facts above) 22,897 27,453 Inventory made in 2011 \$- \$- Part 1: Jenkins's beginning inventory on 1/1/2011 that they sold in 2011. On its own books, under GAAP, Jenkins recorded the full \$3,892 book profit (\$24,000 - \$20,108). Trent must back out the \$3,516 portion of the profit unrealized as of 1/1/2011 so that investment income only reflects the return earned after their investment. Jenkins Trent schedule Sales \$24,000 \$24,000 -COGS (20,108) (23,624) <-- COGS increase adjustment of \$3,516 to reduce Gross Profit 3,892 376 investment income in 2011. Part 2: Jenkins's beginning inventory on 1/1/2011 that they haven't sold by 12/31/2011. As with Illini-HES, Jenkins has not recorded any income related to this inventory because they haven't sold the product yet. Trent doesn't need to adjust Jenkins's income for the unrealized gain in inventory until Jenkins sells it and realizes profit for it. The unrealized gain is deferred until then. No adjustment needed for this part. Part 3: Jenkins's inventory made in 2011, after Trent's investment The inventory Jenkins made after Trent invested in it obviously did not exist on 1/1/2011. There's no unrealized gain on 1/1/2011 for Trent's investment income purposes. No adjustment needed for this part.

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Equity Method class problem Facts in the case. Investment date 1/1/2011 Jenkins shares purchased 3,000 Percentage ownership 30% Balance sheet for Jenkins on investment date (\$000): Assets Book Fair Book Fair Cash \$4,842 \$4,842 A/P \$22,398 \$22,149 Investments 45,166 41,682 L-T Debt 52,994 52,994 Inventory 22,897 27,453 \$75,143 72,895 75,063 Cont. Capital 68,184 Ret. Earnings 2,224 Total assets \$145,800 \$149,040 Total L&E \$145,800 Jenkins depreciated their equipment existing on 1/1/2011 over a 13-year useful life. Jenkins also purchased \$4,500 of equipment in 2011, which they are depreciating over a 15-year useful life.
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Equity Method homework 2 solution - Equity Method 2nd...

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