Patterson acquired 35 percent of the outstanding voting stock of Shapiro Company on January 1, 2020, for $240,000 in cash. The book value of Shapiro's net assets on that date was $600,000, although one of the company's buildings, with a $60,000 carrying (book) amount, was worth $160,000. This building had a 10-year remaining life. In addition, Shapiro owned a royalty agreement with a 5-year remaining life that was overvalued by $30,000 (i.e., the market value was less than its book value).

Shapiro reported a $45,000 net income and a $20,000 other comprehensive loss for 2020. The company managed to declare and pay a $12,000 cash dividend during the year.

Shapiro sold inventory with an original cost of $60,000 to Patterson during 2020 at a transfer price of $100,000. Patterson still held $25,000 of the transfer price in inventory as of December 31, 2020. These goods were to be sold to outside parties during 2021.

During 2021, Shapiro reported a $60,000 net income. It made additional sales with a transfer price of $80,000 to Patterson during the period. The original cost of the merchandise was $50,000. All but 20 percent of this inventory had been resold to outside parties by the end of 2021.

Required: (Be sure to show calculations to get credit)

1. Assume that the equity method is applied. Prepare all journal entries for Patterson for 2020 and 2021 in connection with this investment. Provide supporting calculations if necessary. (Hint: There are about 10 entries to record the initial investment in Shapiro, equity income from Shapiro, other comprehensive income (loss), amortization of excess payment, dividend declaration, and adjustments for deferred profit from inventory sales from Shapiro to Patterson.)

2. Determine the balance of Investment in Shapiro as of December 31, 2020 and December 31, 2021. Show the posting entries to the Investment t-account.

3. Determine the total Equity Income in Shapiro for 2020 and 2021. Show calculations.