Facts: An investor company acquired 40% of the common stock of an investee company for $70,000 cash on January 1, 2020. At this date, the investee reported net assets equal to $150,000. The investees net assets had historical book values that approximately equaled their fair values, except for a customer list that had a fair value equal to $15,000 but a book value of $5,000. The customer list has a 5-year remaining useful life at January 1, 2020. The investee reported net income of $20,000 and paid dividends of $10,000 during both 2020 and 2021. During 2020, the investor sold $2,000 of merchandise to the investee. The investors profit margin is 25% on all of its sales. The investee sold 50% of this intercompany inventory to non-affiliates during 2020 and the remaining inventory to non-affiliates during 2021.

Required: 1. Determine the Investment in Investee balance on the investors books at January 1, 2020. Discuss how this balance relates to the amounts recognized on the investees balance sheet. Identify the specific net assets for which fair values differ from book value and allocate an amount to each of these net assets. 2. Assume the investor has significant influence over the operations of the investee. a. In relation to the Investment in Investee, document the activity recorded by the investor in its pre-consolidation books during the fiscal years ending December 31, 2020 and 2021. b. Determine the Investment in Investee balances in the pre-consolidation balance sheet at December 31, 2020 and 2021. This may be easiest to understand if you draw up a Taccount and map the activity. 3. For this question only, assume all facts remain the same, except now assume that instead of a 40% investment, the investor acquired 80% of the common stock of the investee for $140,000 cash on January 1, 2020. How would your answers to requirements 1 and 2 change?