P $2-3$

Computations for investee when excess allocated to inventories, building, and

goodwill

Vat Company acquired a $30$ percent interest in the voting stock of Zel Company for $$662,000$ on

January $1,2011,$ when Zel's stockholders' equity consisted of capital stock of $$1,200,000$ and retained

earnings of $$800,000.$ At the time of Vat's investment, Zel's assets and liabilities were recorded at their

fair values, except for inventories that were undervalued by $$60,000$ and a building with a $10-$year re$-$

maining useful life that was overvalued by $$120,000.$ Zel has income for $2011$ of $$200,000$ and pays

dividends of $$100,000.$ Assume undervalued inventories are sold in $2011.$

REQUIRED

Compute Vat's income from Zel for $2011.$

What is the balance of Vat's Investment in Zel account at December $31,2011?$

What is Vat's share of Zel's recorded net assets at December $31,2011?$