On January 1, 2019, Lee Company purchased 2,500 of the 10,000 outstanding common shares of JT Limited at a cost of $15 per share. On that date, the balance sheet of JT Limited had the following relevant values:

Fair

Book Market

Account value Value Difference

Current assets $12,000 $12,000 $0

Depreciable capital assets $88,000 $128,000 $40,000

net of accumulated depreciation

Goodwill $0 ? ?

Total $100,000

Liabilities $50,000 $50,000 $0

Common shares $20,000 $20,000 $0

Retained earnings $30,000 ?

Total $100,000

Additional information:

The depreciable capital assets have a remaining useful life of 10 years.

During the 2019 fiscal year, JT Limited had net income of $45,000.

During the year, Lee Company sold to JT inventory with a selling price of $20,000 and a cost of $12,000. The inventory had not been resold by year-end.

During the 2019 fiscal year, JT Limited paid total cash dividends to its common shareholders of $10,000 ($1.00 per share).

Market value per share of JT Limited at December 31, 2019 was $18.

Required:

a) You are to assume that Lee Company can exercise significant influence over JT Limited and uses the equity method to account for its investment. Calculate Lee Companys goodwill on purchase of its investment in JT. Prepare all necessary journal entries for Lee Company for the year ended December 31.

b) Assume that Lee Company accounts for its investment in JT using the fair value through net income method (FV-NI). Prepare all necessary journal entries for Lee Company for the year ended December 31.

c) Show the December 31st numbers under each of the equity and FV-NI methods for:

Investment in JT

Investment Income (including any applicable changes in fair value)