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Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The invesment represnets a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $2.00 per share on Dec 15, 2013, and Lavery reported net income of $160 million for the year ended Dec 1, 2013. The market value of Lavery's common stock at Dec 31, 2013 was $31 per share. On the purchase date, the book value of Lavery's common stock at DEc 31, 2013 was $31 per share. On the purchase date, the book value of Lavery's net assets was $800 million and:
a.The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.
b.The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.
Required: 1) Prepare all appropriate journal entries related to the investment during 2013, assuming Runyan accounts for this investment by the equity method. 2) Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest. Thank you for helping.
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