Estimated Time: 40 to 65 Minutes) On January 1, 2011, Top Company acquired all of Bottom Company's outstanding common stock for $842,000 in cash. As of that date, one of Bottom's buildings with a 12-year remaining life was undervalued on its financial records by $72,000. Equipment with a 10-year life was undervalued, but only by $10,000. The book values of all of Bottom's other assets and liabilities were equal to their fair values at that time except for an unrecorded licensing agreement with an assessed value of $40,000 and a 20-year remaining useful life. Bottom's book value at the acquisition date was $720,000. During 2011, Bottom reported net income of $100,000 and paid $30,000 in dividends. Earnings were $120,000 in 2012 with $20,000 in dividends distributed by the subsidiary. As of December 31, 2013, the companies reported the following selected balances, which include all revenues and expenses for the year:

account Top company Bottom company

Dr Cr Dr Cr

Buildings $1,540,000

$460,000

Cash and receivables 50,000

90,000

Common stock

90,000

400,000

Dividends paid 70,000

10,000

Equipment . . . . . . . . . . . . . . 280,000

200,000

Cost of goods sold . . . . . . . . 500,000

120,000

Depreciation expense 100,000

60,000

Inventory . . . . . . . . . . . . . . . . 280,000

260,000

Land . . . . . . . . . . . . . . . . . . . 330,000

250,000

Liabilities

480,000

260,000

Retained earnings, 1/1/13 . . .

1,360,000

490,000

Revenues . . . . . . . . . . . . . . .

900,000

300,000

Required (20 marks) If Top applies the equity method, what is its investment account balance as of December 31, 2013 If Top applies the initial value method, what is its investment account balance as of December 31, 2013? . Prepare the worksheet entries required on December 31, 2013, to consolidate the financial records of these two companies. Assume that Top applied the equity method to its investment account. How would the worksheet entries in requirement (d) be altered if Top has used the initial value method?