Equity Method

Wright Corporation purchased 40 percent of the outstanding common stock of Licastro Inc. for $12,000,000 on January 12, 2022. On the date of acquisition, Licastro Inc. reported the following amounts on its balance sheet:

Depreciable assets $10,000,000

Non-depreciable assets $14,000,000

Liabilities $7,000,000

Common stock, par $10 $10,000,000

Retained earnings 7,000,000

The book values of the assets and liabilities are the same as their market values with the exception of the depreciable assets which have a market value of $12,000,000. The assets are depreciated using straight-line over 10 years.

REQUIRED:

a) Using the equity method, prepare the journal entry for Wright Corporation to record the acquisition.

b) Calculate how much goodwill Wright acquired.

c) Licastro Inc. reported net income during 2022 of $2,000,000 and paid a cash dividend of $0.50 per share. Prepare the required journal entries for 2022 using the equity method.