On January 1, 2020, the Profit Corp. acquired a 40% interest in Little Inc. for $500,000. On that date, Littles balance sheet disclosed assets with a book value of $2,860,000 and liabilities of $2,000,000. A patent on Littles balance sheet is undervalued by $56,000. The patent has a 4-year remaining useful life. Any additional excess cost over fair value is attributable to Goodwill. During 2021, Little reported net income of $200,000 and paid cash dividends of $60,000. You can type directly on this Word document or print and write out your solution to this problem. Upload your solutions at eLearn.

a. Break the cost of the investment into its component parts.

b. Prepare the entry to record the investment in Little:

c. Prepare the necessary entries to apply the equity method to account for the investment.

d. Prepare a T-account for the Investment in Little account showing its balance at 12-31-20.