On January 1, 2022, Palmcroft Co. acquired 100 percent of the outstanding voting shares of Salt River,

Question:

On January 1, 2022, Palmcroft Co. acquired 100 percent of the outstanding voting shares of Salt River, Inc., for $600,000 cash. At January 1, 2022, Salt River’s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Salt River’s financial records by $80,000. Any remaining excess fair over book value was attributed to a database developed by Salt River (four-year remaining life), but not recorded on its books. Palmcroft applies the equity method to account for its investment in Salt River. Each year since the acquisition, Salt River has declared a $20,000 dividend. Salt River recorded net income of $70,000 in 2022 and $80,000 in 2023. Selected account balances from the two companies’ individual records were as follows: