A subsidiary is acquired on January 1, 2016, for $20 million in cash. The subsidiarys book value at the date of acquisition was $3 million. Following is revaluation information for the subsidiarys identifiable net assets at the date of acquisition:

	Fair Value Book Value
Identifiable intangibles	$ 2,000,000	Straight-line, 5 years
Long-term debt	100,000	Straight-line, 4 years

During 2016, the subsidiary reported net income of $1.5 million and another comprehensive loss of $10,000. The subsidiary declared and paid cash dividends of $500,000. There are no revaluation impairments in 2016. The parent uses the complete equity method to report its investment on its own books.

Required

a. Calculate equity in net income, reported on the parents books.

b. Prepare the parents entries to account for the investment during 2016.

c. What is the December 31, 2016 balance in the investment account, reported on the parents books?

a.

Reported net income		$1,500,000
Amortization of ID intangibles	$2,000,000/5	)
Bond premium amortization	$100,000/4	25,000
Equity in net income		$1,125,000

b.

		20,000,000
	Cash		20,000,000

Investment in subsidiary		1,115,000
Equity in OCL		10,000
	income		1,125,000

Cash		500,000
			500,000

c. $20,000,000 + $1,115,000 - $500,000 = $20,615,000