Following are separate financial statements of Michael Company and Aaron Company as of December $31,2021($credit balances indicated by parentheses$).$ Michael acquired all of Aaron$$s outstanding voting stock on January $1,2017,$ by issuing $20,000$ shares of its own $$1$ par common stock. On the acquisition date, Michael Company$$s stock actively traded at $$23\mathrm{.}50$ per share.

page $143$

Michael Company

$12/31/21$

Aaron Company

$12/31/21$

Revenues

$ $(610,000)$

$ $(370,000)$

Cost of goods sold

$270,000$

$140,000$

Amortization expense

$115,000$

$80,000$

Dividend income

$(5,000)$

$0$

Net income

$ $(230,000)$

$ $(150,000)$

Retained earnings, $1/1/21$

$ $(880,000)$

$ $(490,000)$

Net income $($above$)$

$(230,000)$

$(150,000)$

Dividends declared

$90,000$

$5,000$

Retained earnings, $12/31/21$

$$(1,020,000)$

$ $(635,000)$

Cash

$$110,000$

$$15,000$

Receivables

$380,000$

$220,000$

Inventory

$560,000$

$280,000$

Investment in Aaron Company

$470,000$

$0$

Copyrights

$460,000$

$340,000$

Royalty agreements

$920,000$

$380,000$

Total assets

$ $2,900,000$

$ $1,235,000$

Liabilities

$$(780,000)$

$ $(470,000)$

Preferred stock

$(300,000)$

$0$

Common stock

$(500,000)$

$(100,000)$

Additional paid$-$in capital

$(300,000)$

$(30,000)$

Retained earnings, $12/31/21$

$(1,020,000)$

$(635,000)$

Total liabilities and equity

$$(2,900,000)$

$$(1,235,000)$

On the date of acquisition, Aaron reported retained earnings of $$230,000$ and a total book value of $$360,000.$ At that time, its royalty agreements were undervalued by $$60,000.$ This intangible was assumed to have a six$-$year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $$50,000$ and a $10-$year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period.

$1.$ Assuming that Michael applied the equity method to this investment, how would the consolidation entries differ on a December $31,2021,$ worksheet?

$2.$Assuming that Michael applied the equity method to this investment, how would the December $31,2021,$ reported consolidated balances differ?