Pesto Company paid $164,000 to acquire 40 percent ownership of Sauce Company on January 1, 20X2. Net book value of Sauce’s assets on that date was $300,000. Book values and fair values of net assets held by Sauce were the same except for equipment and patents. Equipment held by Sauce had a book value of $70,000 and fair value of $120,000. All of the remaining purchase price was attributable to the increased value of patents with a remaining useful life of eight years. The remaining economic life of all depreciable assets held by Sauce was five years. Sauce Company’s net income and dividends for the three years immediately following the purchase of shares were as follows:

The computation of Pesto’s investment income for 20X4 and entries in its investment account since the date of purchase were as follows:

Before making closing entries at the end of 20X4, Pestos’s new controller reviewed the reports and was convinced that both the balance in the investment account and the investment income that Sauce reported for 20X4 were in error.

Required

Prepare a correcting entry, along with supporting computations, to properly state the balance in the investment account and all related account balances at the end of 20X4.

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Year 20X2 20X3 20X4 Net Income $40,000 60,000 70,000 Dividends $15,000 20,000 25,000