E 11-3 Parent-company and entity theories Use the information below to answer the questions that follow:

Pablo Corporation purchases a 90 percent interest in Song Corporation for $1,260,000 on January 1, 2016, when the book value of Song’s net assets equals fair value at $1,300,000. The excess is allocated to a patent with a ten-year remaining useful life. Song reports a net income of $130,000 in 2016. Pablo’s ending inventory balance includes unrealized profits of $20,000 from Song.

410 CHAPTER 11