On January 1, Year 1, Liepewan Corporation (LC) purchased 180,000 shares (out of 300,000 shares outstanding) of Mertenika Corporation (MC) stock for $20 per share. Shortly after the acquisition date MC shares were trading at $19 per share. At the acquisition date, Mertenikas book value is $4,000,000. Mertenikas assets with differences between fair value and book value are shown below.

MC Accounts with Fair Value/Book Value differences on 1/1/Year 1

For internal reporting purposes, Liepewan Corporation now uses the initial value method to account for its investment in Mertenika in Year 5.

Using the information on income and dividends in the table below complete the consolidated financial statements for Liepewan Corporation on the provided worksheet for the year ending 12/31/Year 5.

Income, dividends, and retained earnings figures for Mertenika Corporation for the years 1 through 5 are shown below.

Mertenika Dividends Increase in Ending

Year Net Income Paid Book Value Retained Earnings

1 700,000 400,000 300,000 2,000,000

2 750,000 400,000 350,000 2,350,000

3 800,000 450,000 350,000 2,700,000

4 775,000 475,000 300,000 3,000,000

5 800,000 500,000 300,000 3,300,000

$3,825,000 2,225,000 1,600,000

Book Value Fair Value Difference

Land 600,000 750,000 150,000

PPE (8-year life) 2,150,000 2,550,000 400,000

Copyrights (22-year life) 0 550,000 550,000

Mertenikas balance in Notes Payable includes $42,000 that is a short-term loan from LC that is to be repaid in June, Year 2.

For internal reporting purposes, Liepewan Corporation uses the partial equity method to account for this investment.

Complete the consolidated financial statements for Liepewan Corporation on the provided worksheet for the year ending 12/31/Year 1.

Consolidation Worksheet 12/31/Year 1 Liepewan Partial Equity Method

Accounts	Liepewan	Mertenika	Debit	Credit	Noncontrol Int	Totals
Revenues	(4,580,000)	(2,470,000)
Expenses	3,000,000	1,500,000
Depreciation & Amort. Expense	800,000	270,000
Investee Income	(420,000)	0
Net Income	(1,200,000)	(700,000)
Noncontrolling Int NI
Controlling Interest NI
Retained Earnings 1/1	(8,900,000)	(1,700,000)
Net Income	(1,200,000)	(700,000)
Dividends declared	700,000	400,000
Retained earnings 12/31	(9,400,000)	(2,000,000)
Balance Sheet
Current Assets	720,000	1,500,000
Investment in Mertenika	3,780,000	0
PPE (net) (8-years)	7,500,000	2,500,000
Copyright (22-years)	0	0
Goodwill	0	0
Land	2,300,000	600,000
Total Assets	14,300,000	4,600,000
Accounts Payable	(300,000)	(100,000)
Notes Payable	0	(200,000)
Noncontrol Interest 1/1
Noncontrol Interest 12/31
Common Stock	(100,000)	(300,000)
Additional Paid-in capital	(4,500,000)	(2,000,000)
Retained earnings	(9,400,000)	(2,000,000)
Total liabilities and equity	(14,300,000)	(4,600,000)