On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,818,600 in cash. The price paid was proportionate to Sellingers total fair value, although at the acquisition date, Sellinger had a total book value of $2,330,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellingers accounting records by $258,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $710,625 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.

During the two years following the acquisition, Sellinger reported the following net income and dividends:

	2020			2021
Net income	$	547,500		$	733,500
Dividends declared		200,000			240,000

1. Show Palkas journal entry to record its January 1, 2021, acquisition of an additional 25 percent ownership of Sellinger Company shares.

2. Prepare a schedule showing Palkas December 31, 2021, equity method balance for its Investment in Sellinger account.

Journal entry worksheet