On January 1, 20X0, Hunter Corporation issued 6,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow Manufacturing€™s balance sheet immediately before the acquisition contained the following items:

On the date of the stock acquisition, Hunter€™s shares were selling at $35, and Arrow Manufacturing€™s buildings and equipment had a remaining economic life of 10 years. The amount of the differential assigned to goodwill is not impaired.
In the two years following the stock acquisition, Arrow Manufacturing reported net income of $80,000 and $50,000 and paid dividends of $20,000 and $40,000, respectively. Hunter used the equity method in accounting for its ownership of Arrow Manufacturing.

Required
a. Give the entry recorded by Hunter Corporation at the time of acquisition.
b. Give the journal entries recorded by Hunter during 20X0 and 20X1 related to its investment in Arrow Manufacturing.
c. What balance will be reported in Hunter€™s investment account on December 31,20X1?

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ARROW MANUFACTURING Balance Sheet January 1, 20X0 Book Value Fair Value Assets Cash & Receivables Land Buildings & Equipment (net Patent Total Assets 30,000 70,000 120,000 80,000 $300,000 $30,000 80,000 150,000 80,000 Liabilities & Equities Accounts Payable Common Stock Retained Earnings Total Liabilities & Equities S 90,000 150,000 60,000 300,000 90,000