ASAP ! Problem 1.

Subsequent Consolidation When the Equity Method is Used

Assume that P acquires 100% of the stock of S for $1,000,000 cash on 1/1/21. Ss accounts at the acquisition date are as follows:

Book Value Fair Value Difference

Current assets $350,000 $350,000 -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

Assume that S earns an income of $80,000 during 2021 and pays a cash dividend of $30,000. P uses the equity method to account for its investment in S.

a) Journal entries on Ps books during 2021 are as follows:

b) How much equity in investee income will P recognize on its income statement for 2021?

c)What is the balance in the Investment in S account on 12/31/21?