Doulo Corporation acquires a 90 percent interest in Dalu Corporation on January 1, 2016, when Dalu’s equity consists of $1,000,000 common stock and $500,000 retained earnings, and the book value of its net assets equals fair value. On December 31, 2016, Doulo Corporation and Subsidiary’s consolidated balance sheet consists of $50,000 goodwill and $90,000 unamortized patent with a ten-year remaining useful life.

1. What is the purchase price of the investment under entity theory?

a. $1,650,000

b. $1,495,000

c. $1,485,000

d. None of the above

2. What is the purchase price of the investment under traditional theory?

a. $1,350,000

b. $1,500,000

c. $1,650,000

d. None of the above