On January 1, 2020, Mercedez Company purchased 400 of the 1,000 outstanding shares of Auto Supplies Inc. for $40,000. At that date, the balance sheet of Auto Supplies Inc. showed the following values.

Assets not subject to depreciation . . . . . . . . . . . .40,000*

Assets subject to depreciation . . . . . . . . . . . . . . . 26,000**

Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000*

Common stock (par $1) . . . . . . . . . . . . . . . . . . . . . 50,000

Retained earnings . . . . . . . . . . . . . . . . . .. . . . . . . . 10,000

Note:

* Same as fair value.

** Fair value $30,000; the assets have a 10-year remaining useful life (straight-line depreciation).

Assume that on December 31, 2020 (end of the accounting period), Auto Supplies Inc. reported net income of $12,000 and declared and paid a $2 per share cash dividend.

Required:

a) Show the items and the amounts that would be reported in the Income Statement, Statement of Financial Position and Cash flow Statement in the 2020 Annual Report.

b) Assume that Mercedez Company decides to sell the investments in Auto Supplies on January 5 th, 2021 for $45,000. Provide the entry to record the sale of the Investment.

c) For this requirement only assume the company does not have significant influence. What would have been the impact on the Income Statement and Statement of Financial Position on December 31st, 2020 (end of the accounting period) and on January 5th 2021 after the sale of the investments? Fair Values for the Investment in the 400 shares of Auto Supplies on 3 December 31st 2020 and on January 5th 2021 are $47,000 and $45,000, respectively