1) ABC Co. owns 25% of the common stock of Pepsi Co. and uses the equity method to account for the investment. In 2021, Pepsi reported an income of $120,000 and paid dividends of $40,000. Pepsi owns a building with a useful life of twenty years, which was undervalued by $80,000 at the time that ABC bought its shares of Pepsis common stock.

How much equity income should ABC recognize for 2021 related to this investment?

2) ABC Corp. purchased 35% of the common stock of Pepsi Co. by paying $625,000. Of this amount, $45,000 is associated with goodwill.

Prepare the journal entry to record ABCs investment.

3) On January 3, 2021, ABC Co. paid $500,000 for 25% of the voting common stock of Pepsi Corp. At the time of the investment, Pepsi had net assets with a book value and fair value of $1,800,000. During 2021, Pepsi incurred a net loss of $60,000 and paid dividends of $100,000. Any excess cost over book value is attributable to goodwill with an indefinite life.

What is the balance in ABCs investment account at December 31, 2021?