P Company paid $8,000,000 (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 $1,400 $1,900

Other Current Assets $900 $400

Land $2,400 $3,800

Building (10 year life) $1,400 $1,000

Patent (10 year life) $1,300 $1,000

Total Assets $8,600 $9,300

Accounts Payable $400 $2,400

Accrued Liabilities $1,200 $100

B/P (10 year maturity) $1,000 $1,100

Common Stock $5,000

Retained Earnings $1,000

Total $8,600

The company earned income of $24,000 ($2,000 per month) in 2007 and paid total dividends of $12,000 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