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Assume that P acquires 75% of the stock of S for $750,000 cash on 1/1/21. Ss accounts at the acquisition date are as follows:

Book Value Fair Value Difference

Cash and receivables $150,000 $150,000 -0-

Inventory 200,000 200,000 -0-

Land 300,000 400,000 100,000

Buildings (10-year life) 500,000 650,000 150,000

Equipment (5-year life) 200,000 150,000 (50,000)

Liabilities (650,000) (650,000) -0-

Net assets $700,000 $900,000 $ 200,000

Common stock 100,000

Additional PIC 200,000

Retained earnings 400,000

S earns income of $80,000 during 2021 and pays a cash dividend of $30,000. In addition, S earns income of $100,000, $120,000, and $125,000 and pays dividends of $30,000, $35,000, and $40,000 in 2022, 2023, and 2024, respectively. Assume P uses equity method accounting to account for S.

In addition, assume that there have been downstream transfers, from P to S, in 2023 and 2024. P sold $200,000 of inventory to S at a transfer price of $250,000 in 2023 and inventory of $100,000 at a transfer price of $140,000 in 2024. At the end of each year, exactly half of the inventory transferred in the current year remained unsold to a third party.

We want to prepare consolidated financial statements as of 12/31/24.

a) First, what is the 12/31/13 balance in Ps Investment in S account?

b)Second, how much equity in investee income will P recognize in 2013?

c)Consolidating entries: