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Calculate the Investment in Detroit Company

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Question - On January 2, 2017, Michigan Company acquired 25% of the common stocks of Detroit Company for $30 million paid in cash. Michigan Company accounts for its investment using the equity method. At the time of acquisition, Detroit Company's balance sheet was as follows (in millions):

Assets Liabilities and equity Current Assets 22

Current Liabilities 42

Property and equipment, net 415

Long-term debt 518

Patents and trademarks 150

Capital Stock 12

Retained earnings 15

Total Assets 587 Total Liabilities and Equity 587

Valuation of Detroit's assets and liabilities revealed that its reported patents and trademarks (20-year life) had a fair value of $160 million and it had unrecognized brand names (30-year life) worth $18 million. Detroit's December 31, 2020, retained earnings balance is $20 million. For 2020, it reported net income of $2.5 million and paid $650,000 in dividends.

Required -

1. Prepare the 2020 entries to report the above information on Michigan's books? Show all your calculations.

2. Calculate the Investment in Detroit Company, reported on Michigan's December 31, 2020 balance sheet. Show all your calculations.

Reference no: EM132624460

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