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On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow

On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow Manufacturing's balance sheet immediately before the acquisition contained the following items:

ARROW MANUFACTURING Balance Sheet January 1, 20X0
Book Value Fair Value
Assets
Cash and Receivables $ 46,000 $ 46,000
Land 81,000 91,000
Buildings & Equipment (net) 130,000 160,000
Patent 91,000 91,000
Total Assets 348,000
Liabilities & Equities
Accounts Payable $ 172,000 172,000
Common Stock 133,000
Retained Earnings 43,000
Total Liabilities & Equities $ 348,000

On the date of the stock acquisition, Hunter's shares were selling at $35, and Arrow Manufacturing's buildings and equipment had a remaining economic life of 10 years. The amount of the differential assigned to goodwill is not impaired.

In the two years following the stock acquisition, Arrow Manufacturing reported net income of $80,000 and $50,000 and paid dividends of $25,000 and $40,000, respectively. Hunter used the equity method in accounting for its ownership of Arrow Manufacturing.

a.

Prepare the entry recorded by Hunter Corporation at the time of acquisition

b-1.

Prepare the journal entries recorded by Hunter during 20X0 related to its investment in Arrow Manufacturing.

b-2.

Prepare the journal entries recorded by Hunter during 20X1 related to its investment in Arrow Manufacturing.

c.

What balance will be reported in Hunters investment account on December 31, 20X1?

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