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On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,080,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $780,000, retained earnings of $330,000, and a noncontrolling interest fair value of $270,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following: Dividends Declared $43,000 53,000 Net Income $230,000 210,000 Inventory Purchases from Corgan $ 180,000 200,000 2017 2018 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 40 percent of the current year purchases remain in Smashing's inventory. a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018. b. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing. No Transaction Accounts Debit Credit 1 1 27,000 > Retained earnings - Corgan Cost of goods sold 27,000 2 2 780,000 357,000 X Common stock - Smashing Retained earnings - Smashing Investment in Smashing Noncontrolling interest OOOO 909,600 X 227,400 3 3 Covenants 228,000 > 182,400 Investment in Smashing Noncontrolling interest 45,600 4 4 155,400 Equity in earnings of Smashing Investment in Smashing 155,400 5 5 42,400 OL Investment in Smashing Dividends declared 42,400 6 6 12,000 . Amortization expense Covenants 12,000 7 7 200,000 > Sales Cost of goods sold 200,000 8 8 30,000 > Cost of goods sold Inventory 30,000