Question
Netflix Inc. purchased 31 percent of Hulu LLC's voting stock on January 1, 2016, for 4.5 million in cash. At the date of acquisition, Hulu
Netflix Inc. purchased 31 percent of Hulu LLC's voting stock on January 1, 2016, for £4.5 million in cash. At the date of acquisition, Hulu reported its total assets at £75 million and its total liabilities at £69 million. Investigation revealed that Hulu's software (5-year life) was overvalued by £2.3 million and it had an unreported customer base (3-year life) valued at £700,000. Hulu declares and pays £150,000 in dividends and reports net income of £320,000 in 2021.
Required: Prepare the necessary journal entries on Netflix's books to report the above information for 2021 assuming Netflix uses the equity method to report its investment.
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