How do I analyze the investment in QSI and what are the adjustments that need to be done to SBW Financial Statements for the year ending Dec 31, 2022. I need to switch from cost to equity and do an equity pick-up. then adjust for what it is supposed to be from previous and current year.

SBW had been accounting for its investment in QSI using the cost method and it needs to be switched to the equity method.

A 25% equity interest of QSI was purchased on Jan 1, 2020. ON Jan 1, 2020 QSI issued 80,000 common shares to SBW for $1,300,000. Prior to the issue QSI had 320,000 common shares outstanding giving SBW a 25% interest.

Purchase documents from Jan 1, 2021 show QSI's shareholders' equity accounts were;

Share Capital $500,000

Retained Earningss $1,989,000

All assets and liabilities were equal to book values except for inventory which had a fair value $260,000 greater than book value and an intangible asset relating (a process) with a fair value of $1,500,000 and a book value of $650,000- the intangible asset has a useful life of 20 years,

Inventory is purchased by SBW from QSI every year. A summary of purchases and amounts in ending inventory for the year is;

2021-purchases $7,000,000

2021-profit in EI $216,000

2022- purchases $7,380,000

2022- profit in EI $41,000

QSI

Stmt of RE

Ending Dec 31, 2022

Opening RE $3,688,170

Net Inc 657,170

Dividends -271,000

Ending Retained Earnings $4,074,835

QSI

Stmt of RE

Ending Dec 31, 2021

Opening RE $2,901,400

Net Inc 965,620

Dividends -178,850

Ending Retained Earnings $4,074,835