P Company paid $5,000,000 (cash) for an 80% interest in S Company on 7/1/07. The book values and fair values of Ss assets and liabilities on the date of acquisition were as follows:

	BV	FV
Cash	$400	$400
Accounts Receivable	$800	$800
Inventories	$1,200	$1,900
Other Current Assets	$100	$400
Land	$2,400	$800
Building (10 year life)	$1,400	$1,000
Patent (10 year life)	$1,300	$1,200
Total Assets	$7,600	$6,500
Accounts Payable	$400	$400
Accrued Liabilities	$200	$100
B/P (10 year maturity)	$1,000	$1,200
Common Stock	$5,000
Retained Earnings	$1,000
Total	$7,600

The company earned income of $240,000 ($20,000 per month) in 2007 and paid total dividends of $200,000 on October 1, 2007.

Required

1) Compute the goodwill from the acquisition

2) Compute the Equity method Income from Sub. for 2007.

3) Record the Equity method journal entries for 2007.

4) Analyze the Investment Account at 12/31/07

1) Goodwill

2) Income from Sub

3) Equity Method Journal Entries

4) Analysis of Investment Account