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1. On 1/1/X1, Big Company acquired 80% of Small Company for $850,000. At the time, Smalll reported $500,000 of capital stock and $500,000 of retained

1. On 1/1/X1, Big Company acquired 80% of Small Company for $850,000. At the time, Smalll reported $500,000 of capital stock and $500,000 of retained earnings. An appraisal identified a building as being under-valued by $40,000. The building has a 10-year life. During year X1, Small reported a $100,000 income and Big reported a $200,000 income (The latter amount excludes Big's investment income.) Based on this information, prepare the journal entries for Big's Investment in Small for year X1.

2.This question is an extension of the preceding question. Recall that on 1/1/X1, Big Company acquired 80% of Small Company for $850,000. At the time, Smalll reported $500,000 of capital stock and $500,000 of retained earnings. An appraisal identified a building as being inder-valued by $40,000. The building has a 10-year life. During year X1, Small reported a $100,000 income and Big reported a $200,000 income (This amount excludes investment income.) Based on this information, prepare the worksheet entries to consolidate the trial balances of Big and Small on12/31/X1.

3.Palm Company owns 100% of Soso Company. During year X1, Soso sold merchandise costing $50,000 to Palm for $80,000. As of 12/31/X1, 40% of the merchandise remained in Palm's inventory. Assuming that Soso reported a $100,000 net income an paid $20,000 of dividends in year X1, how much investment income should should Palm recognize in year X1? $120,000

$100,000

$88,000

$70,000

None of the Above

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