Equity Method In-Class Example' Part I: On January 2nd, 2020, The Flash Company acquired 300,000, or 30 percent, of the voting shares of Star Labs Corp. for $40.00 a share, a total of $12,000,000 cash. It is determined that Flash has significant influence over Star Labs, therefore the equity method is appropriate. Star Labs reports net income of $2 million for the year ended December 31st, 2020. Star Labs declares a dividend of $0.50 per share on November 1st, 2020, and pays the dividend on December 2nd. Required: 1. Is it enough for Flash to assume that a 30% ownership gives them significant influence over Star influence? Labs? What other evidence would they need to reach the conclusion that they have significant 2. Prepare the J/E to recognize the above transactions. Part II: Assume that on January 2nd, 2020 Star Labs had a net book value of $30 million. Also assume that an analysis of Star Labs assets and liabilities indicates that its plant and equipment is reported at $1 million less than its fair value; the equipment has an estimated remaining useful life of 10 years. Star Labs also has unreported technology worth $5 million; assume the technology is a limited life intangible asset with 5-year life. Required: 1. Calculate the amount of goodwill that is implied on Flash equity investment on Star Labs. 2. Prepare the J/E to adjust Flash equity income for the items that had FV over BV on January 2nd, 2020. Part III: Assume that Flash and Star Labs sell merchandise to each other during 2020. Star Labs charges an average markup of 20% to Flash (upstream) while Flash charges an average markup of 25% to Star Labs (downstream). At the end of 2020 Flash still holds $210,000 of merchandise acquired from Star Labs while Star Labs still holds $100,000 of merchandise purchased from Flash. Required: 1. Is there a difference in the way unrealized profits are calculated for upstream vs. downstream sales when applying the equity method to this situation? Why? 2. Prepare the J/E to recognize the deferral of profits associated with the above information. 3. Summarize the information from Parts I, II and III in a schedule that shows the calculation of Flash's Equity Investment Income from Star Labs investment. Part IV: Assume that Star Labs reported unrealized gains of available for sale securities of $200,000, which was the only OCI reported by Star Labs. Required: 1. Prepare the J/E to reflect the OCI gains from the equity investment on Flash's boods. 2. Calculate Flash's Equity Investment on Star Labs balance on December 3 1 st 2020. (Adapted from Hamlen's Advanced Accounting 4th Edition @ 2018 discussion in pp. 10-12)