On July 1, 2015 Allen Company acquired 70,000 of the outstanding shares of Brown Company for $12 per share. This acquisition gave Allen a 40 percent ownership of Brown and allowed Allen to significantly influence the investee's decision-making process.

As of July 1, 2015, the investee had assets with a book value of $2 million and liabilities of $600,000. At the time, Brown held equipment appraised at $150,000 above book value; it had a six-year remaining life with no salvage value. Brown also held a copyright with a five-year remaining life on its books that was undervalued $400,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Allen applies the equity method for its investment in Brown.

Brown's policy is to pay a $1 per share cash dividend every April 1 and October 1. Brown's income, earned evenly throughout the year, was $500,000 in 2015, $525,000 in 2015, and $600,000 in 2017. In addition, Allen sold inventory costing $90,000 to Brown for $150,000 during 2015. Brown resold $80,000 of this inventory during 2015 and the remaining $70,000 during 2017.

Required:

A. Prepare the journal entries for Allen for the years 2015 through 2017.

B. Compute the income recognized by Allen in 2016.

C. Compute Allen's Investment in Brown Company account balance in 2017.

Additional Information for letters D, E & F Only: Assume that Allen Company does not have significant influence over Brown Company, the fair value of the investment at the end of 2015 was $900,000, and the investment is considered an available for sale security.

D. Under these revised circumstances, prepare the journal entries for Allen for 2015. (Hint: You may want to refer to the Intermediate Accounting textbook to assist you with this.)

E. Compute the income recognized by Allen in 2015 under the revised circumstances.

F. Compute Allen's Investment in Brown account balance that would be on the Balance Sheet in 2015 under the revised circumstances.