1)Morgan Company acquires 40% of the voting stock of Kirk Corporation on January 1, 2014, for

$60,000,000, and treats it as an equity method investment. At the date of Morgan's investment, the fair values of Kirk's net assets differed from book values as follows:

Book valueFair value

Merchandise (sold during 2014) $5,000,000$ 8,000,000

Buildings and equipment (20-year life)30,000,000 40,000,000

Intangible assets (4-year life) 010,000,000

Kirk reports total net income of $20,000,000 for the period 2014 - 2017, and $5,000,000 for 2018. Kirk paid no dividends during the period 2014 - 2017, but paid $1,000,000 in dividends in 2018. The accounting year for both companies ends December 31.

Kirk sells merchandise to Morgan at a markup of 30% on cost (Hint: what is the relationship between markup on cost and gross profit %?). The inventory balances held by Morgan, purchased from Kirk, are as follows.

Inventory held by Morgan, purchased from Kirk

December 31, 2017$1,560,000

December 31, 20182,600,000

How can I calculate the equity in net income of Kirk, reported on Morgan's 2018 income statement?

How canI calculate Investment in Kirk, reported on Morgan's December 31, 2018 balance sheet?