On July 1, 2012, Selig Company purchased for cash 40% of the outstanding capital stock of Spoor Corporation. Both Selig and Spoor have a December 31 year-end. Spoor Corporation, whose common stock is actively traded on the American Stock Exchange, paid a cash dividend on November 15, 2012, to Selig Company and its other stockholders. It also reported its total net income for the year of $920,000 to Selig Company.

Instructions

Prepare a one-page memorandum of instructions on how Selig Company should report the above facts in its December 31, 2012, balance sheet and its 2012 income statement. In your memo, identify and describe the method of valuation you recommend. Provide rationale where you can. Address your memo to the chief accountant at Selig Company.