On 1/1/20x0, Prospector, Inc. paid $5,875,000 to acquire 100% of the outstanding common stock of Sinclair Company. After the acquisition, Sinclair will remain in business as a separate operating company. Additionally, Prospector, Inc. will account for their investment using the equity method.

At the acquisition date, Sinclair Corporations stockholders equity was as follows:

Sinclair Corporation Statement of Shareholders' Equity 1/1/20x0
Retained earnings	$1,500,000
Common Stock	500,000
Total Shareholders Equity 1/1/20x0	$2,000,000

In addition, the fair value in excess of book value and the remaining useful lives of certain noncurrent assets/noncurrent liabilities of Sinclair Company at acquisition were:

• Software licenses, (10-years): $2,500,000,
• Unpatented technology (8 years): $800,000, and
• Understatement of long-term debt (5 years): $100,000

The book value of all other assets and liabilities were equal to their fair values.

During 20x0, Sinclair reported net income of $480,000 while paying dividends of $25,000. During 20x1, Sinclair reported net income of $960,000 while paying dividends of $50,000.

Required

1. Record Prospector Inc.s acquisition of Sinclair Corporation at 1/1/20x0.
2. Prepare a schedule showing the allocation of the purchase price to the fair value of the net assets acquired, including periodic depreciation/amortizations of the related purchase price adjustments.
3. Prepare a schedule showing the computation of goodwill recorded at acquisition, if any.
4. Prepare Prospectors journal entries for 20x0 and 20x1 related to their acquisition of Sinclair Company.
5. Prepare the consolidating worksheet journal entries for fiscal year-ending 20x0.
6. Prepare the consolidating worksheet journal entries for fiscal year-ending 20x1.

On 1/1/20x1, Palma Company acquires a 25% investment in the voting common stock of Small Fish, Inc. for $150,000. Palma Company accounts for their investment using the equity method. (Assume that the book values of Small Fishs net assets equal their fair values, and that Small Fish is not a dividend payer.) For fiscal year-end 20x1 and 20x2, Small Fish, Inc. incurs a net loss of $500,000 and $300,000, respectively. For fiscal year-end 20x3, Small Fish, Inc. returns to profitability generating net income of $75,000

Required: Prepare a schedule showing the activity in Palma Companys investment in Small Fish from initial investment to fiscal year-end 20x3. Your schedule should begin with Palmas initial investment and show how the investment account is adjusted by Small Fishs periodic income or loss.