Applying the Equity Method: Consolidation Entries On 1/1/06, Pele Inc. acquired 100% of Soccerex Inc.’s outstanding common stock at a cost of $400,000. The analysis of Pele’s investment in Soccerex by the individual components of the major conceptual elements as of tht acquisition date follows:

Remaining Life Book value element:

UnderCommon Retained or (over)valuation stock earnings

.

.

of net assets element:

Inventory Land .

.

Goodwill Cost Building

.

element

.

.

$100,000 60,000 5,000 3 months 105,000 Indefinite 90,000 40,000 15 years Indefinite

$400,000 Soccerex declared the following net income (loss) and dividends for 2006 and 2007:

Net Income Dividends

(Loss) Declared (and Paid)

2006 . $ 35,000 $5,000 Required 1. Assuming that the parent company uses the equity method of accounting, prepare the journal entries it would make for 2006 and 2007 for its investment in the subsidiary.

2. Prepare an analysis of the Investment account by the components of the major conceptual ele¬

ments as of the acquisition date, and update it for the entries developed in requirement 1.

3. Prepare all consolidation entries as of 12/31/06 and 12/31/07.