Blanch Corporation purchased 25 percent of the voting common shares of Chadwick Company on January 1, 20X2,

Question:

Blanch Corporation purchased 25 percent of the voting common shares of Chadwick Company on January 1, 20X2, for $\$ 80,600$. At January 1, 20X2, Chadwick Company reported the following balance sheet amounts and fair values:

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At January 1, 20X2, the estimated remaining economic life of buildings and equipment held by Chadwick was 10 years. Chadwick records inventory on a first-in-first-out basis. The amount paid by Blanch Corporation in excess of the fair value of the reported net assets of Chadwick Company is assigned to other identifiable assets with a useful life of eight years at January 1, 20X2.
For 20X2, 20X3, and 20X4. Chadwick reported net income of $\$ 56.000 . \$ 38.000$ and $\$ 62.000$. respectively. Dividends of $\$ 16,000$ were paid each year. The computation of investment income recorded by Blanch Corporation in 20X4 and entries in its investment account since the date of purchase are as follows:

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The chief financial officer of Blanch Corporation believes an error has been made in recording investment income under the equity method.
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a. Give the entry or entries that Blanch Corporation should have recorded in $20 \mathrm{X} 4$ if the cost method was used in accounting for its investment in Chadwick Company.

b. Give the entry or entries that Blanch Corporation should have recorded in $20 \mathrm{X} 4$ if the equity method was used in accounting for its investment in Chadwick Company.

c. In light of the entries recorded by Blanch over the three-year period, give the adjusting or correcting entry needed to properly state the balance in the investment account and all related account balances at December $31,20 \times 4$, assuming the equity method is used and closing entries for $20 \mathrm{X} 4$ have not yet been made.

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