Patrick Corporation acquired 100 percent of O'Brien Company's outstanding common stock on January 1 for $617,000 in cash. O'Brien reported net assets with a carrying amount of $351,000 at that time. Some of O'Brien's assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:

Book

ValuesFair

ValuesTrademarks (indefinite life)$66,000$206,000Customer relationships (5-year remaining life)083,400Equipment (10-year remaining life)417,000384,600

Any goodwill is considered to have an indefinite life with no impairment charges during the year.

The following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O'Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses.

PatrickO'BrienRevenues$(1,192,500)$(776,000)Cost of goods sold318,000356,000Depreciation expense91,50092,400Amortization expense28,4000Income from O'Brien(314,160)0Net income$(1,068,760)$(327,600)Retained earnings 1/1$(786,000)$(251,000)Net income(1,068,760)(327,600)Dividends declared143,00081,000Retained earnings 12/31$(1,711,760)$(497,600)Cash$207,000$114,500Receivables370,00076,200Inventory188,000169,000Investment in O'Brien850,1600Trademarks498,00075,900Customer relationships00Equipment (net)978,000283,000Goodwill00Total assets$3,091,160$718,600Liabilities$(979,400)$(121,000)Common stock(400,000)(100,000)Retained earnings 12/31(1,711,760)(497,600)Total liabilities and equity$(3,091,160)$(718,600)

1. Which investment method did Patrick use to compute the $314,160 income from O'Brien?
2. Determine the totals to be reported for this business combination for the year ending December 31.
3. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O'Brien for the year ending December 31.