ABC Inc. a publicly accountable entity has purchased 20,000 common shares of Clipper Corp. for $7,000,000 on December 31, 2017. At the time of the purchase, Clipper Corp. had 80,000 common shares outstanding and a net book value of $17,500,000. The purchase provides ABC with significant influence over the operating activities of the investee company. During due diligence, the following values were determined.

Fair Net Book

Value Value

Land $4,000,000 $1,500,000

Patent 1,000,000 600,000

Building 4,000,000 2,000,000

The patent had a remaining legal life of 4 years and a remaining useful life of 7 years. The Building had a remaining useful life of 10 years.

In 2018, Clipper Corp. reported net income of $4,500,000 and paid a dividend of $600,000

REQUIRED

1. Calculate goodwill (if any) resulting from the acquisition. (5 Marks)

2. Prepare the journal entry to record the acquisition of the shares and any entries necessary to record the activities of 2018 related to the investment. (7 Marks)