On January 1, 2014, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc. for $4,200,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trails board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trails board which gave it the ability to significantly influence Sauk Trails operating and investing activities.

The January 1, 2014, carrying amounts and corresponding fair values for Sauk Trails assets and liabilities follow:

	Carrying Amount			Fair Value
Cash and receivables	$	185,000		$	185,000
Computing equipment		5,675,000			6,900,000
Patented technology		175,000			4,150,000
Trademark		225,000			2,150,000
Liabilities		260,000			260,000

Also as of January 1, 2014, Sauk Trails computing equipment had a remaining estimated useful life of seven years. The patented technology was estimated to have a three year remaining useful life. The trademarks useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost.

During the next two years, Sauk Trail reported the following net income and dividends:

	Net Income			Dividends Declared
2014	$	1,950,000		$	225,000
2015		2,135,000			235,000

The fair value of the Sauk Trail stock was $4,201,400 on December 31, 2014 and $4,195,900 on December 31, 2015

Requirement 1: Assuming Alison uses the equity method, do the following:

a.

Prepare all of the journal entries for Ridge Road Company regarding their investment in Sauk Trail, Inc. stock.

b.

How much of Ridge Roads $4,200,000 payment for Sauk Trail is attributable to goodwill?

c.

What amount should Ridge Road report for its equity in Sauk Trails earnings on its income statements for 2014 and 2015?

d.

What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2014 and 2015?

Requiement 2: Assuming Alison uses the fair-value option, do the following:

a.	Prepare all of the journal entries for Ridge Road Company regarding their investment in Sauk Trail, Inc. stock.