Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle’s book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle’s January 1, 2020 retained earnings balance is $11 million. Safestyle reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books.

6 a. What is 2020 equity in net income of Safestyle, reported on Potash’s books?

a. $1,800,000 b. $ 800,000 c. $1,300,000 d. $ 300,000

6 b. What is the December 31, 2020 balance for Investment in Safestyle, reported on Potash’s books?

a. $50,000,000 b. $52,000,000 c. $54,800,000 d. $53,300,000

6 c On the December 31, 2020 consolidation working paper, eliminating entry (E) credits the Investment in Safestyle account by:

a. $13,000,000 b. $11,000,000 c. $ 8,000,000 d. $ 9,300,000

6 d On the December 31, 2020 consolidation working paper, eliminating entry (R) credits the Investment in Safestyle account by:

a. $40,000,000 b. $39,000,000 c. $38,500,000 d. $39,500,000

6 e On the December 31, 2020 consolidation working paper, eliminating entry (O) debits goodwill impairment loss:

a. $ 500,000 b. $38,500,000 c. $ 1,500,000 d. $39,000,000