Harper, Inc. acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2017, for $334,900 in cash. The book value of Kinman's net assets on that date was $625,000, although one of the company's buildings, with a $70,800 carrying amount, was actually worth $135,550. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $147,500.

Kinman sold inventory with an original cost of $77,700 to Harper during 2017 at a price of $111,000. Harper still held $18,750 (transfer price) of this amount in inventory as of December 31, 2017. These goods are to be sold to outside parties during 2018.

Kinman reported a $51,800 net loss and a $26,600 other comprehensive loss for 2017. The company still manages to declare and pay a $15,000 cash dividend during the year.

During 2018, Kinman reported a $57,200 net income and declared and paid a cash dividend of $17,000. It made additional inventory sales of $120,000 to Harper during the period. The original cost of the merchandise was $75,000. All but 30 percent of this inventory had been resold to outside parties by the end of the 2018 fiscal year.

Prepare journal for 12/31/2018: Record the 40% accrual of income as earned by equity investee.