1. On January 1, Year 4, we purchased a 25 percent interest in Howell for a price of $400,000. At the time of acquisition, Howell's equity (net assets) had a book value of $1,400,000 and a fair value of $1,520,000. The excess of fair value over book value (the premium) relates to equipment with a remaining useful life of five years. 2. I've been notified that Howell paid dividends to its common shareholders at December 31, Year 4, and I've asked Howell's controller, Cecilia, to forward to you the information related to those dividends, accordingly. Also, please keep in mind the following: 1. We are presumed to have significant influence over the operations and financial policies of Howell due to our purchase of more than 20 percent, but less than 50 percent, of Howell's common stock (voting shares). Therefore, we have determined that it is appropriate to use the equity method of accounting for recording and reporting our investment activity in Howell. 2. We do not own any preferred shares of Howell's stock. 3. Pursuant to company policy, we use the straight-line method of depreciation for amortization. Howell Distributors Balance Sheet Year 4 Below are excerpts from the Stockholders' Equity section of Howell Distributors' balance sheet: Capital stock Preferred stock, $100 par value, 5% cumulative, 5,000 shares authorized, 1,000 shares issued and outstanding Common stock, $1 par value, 500,000 shares authorized, 350,000 shares issued and outstanding Additional paid-in capital Total capital stock $ 100,000 350,000 225,000 $ 675,000 Net sales revenue Cost of goods sold Gross profit SG&A expenses Income from operations Other revenues/gains (expenses/losses) Income (loss) before taxes Income tax expense Net income (loss) Year 4 $ 3,000,000 (1,750,000) 1,250,000 (1,050,000) 200,000 (75,000) 125,000 (25,000) $ 100,000 Hi Leary! Sorry for the delay in my response regarding the common stock dividend question. We had the chance to go skiing last weekend and just returned from Colorado. It is taking me awhile to get back in the swing of things! Ashley asked me to forward information on the common stock dividends paid last year. On December 31, Howell declared and paid $28,000 in dividends to our common stock shareholders. The dividends were paid to our common shareholders via ACH transaction on the 31st and you should see this activity on your operating bank statement for December when received this month. If you need more information, please let me know. I will provide a quick turnaround to any questions. Have a great afternoon! Cecilia On January 1, Year 4, Hodgskin Bakeries, a producer and wholesaler of baked goods, invested in Howell Distributors, a seller of baking spices, such as cinnamon, allspice, and nutmeg. As an accountant on the consolidations team in the corporate offices of Hodgskin Bakeries, you are responsible for preparing the journal entries related to Hodgskin's investment in Howell following the company's year-end of December 31, Year 4. Both Hodgskin's and Howell's fiscal year-end is December 31. Using the exhibits and transaction information provided, prepare the Year 4 journal entries for the investment in Howell as of year-end. To prepare each required journal entry: Record Hodgskin's initial investment in Howell Corp Recognize Hodgskin Co.'s net income (loss) in Howell Corp. Record amortization of investment premium for undervalued equipment (premium excludes goodwill). Record dividend paid by Howell Corp. to common shareholders