Prepare journal entries and income statement, and determine investment account balance (LO# 2 & 4)

Burwood Corporation paid $390,000 for a 30 percent interest in Martin Corporation on December 31, 2011, when Martin's equity consisted of $1,000,000 capital stock and $400,000 retained earnings. The price paid by Burwood reflected the fact that Martin's inventory (on a FIFO basis) was overvalued by $100,000.

The overvalued inventory items were sold in 2012.

During 2012 Martin paid dividends of $200,000 and reported income as follows (in thousands):

Income before extraordinary items $340

Extraordinary loss (net of tax effect) 40

Net income $300

REQUIRED

1. Preparee all journal entries necessary to account for Burwood's investment in Martin for 2012.

2. Determine the correct balance of Burwood's Investment in Martin account at December 31, 2012.

3. Assume that Burwood's net income for 2012 consists of $2,000,000 sales, $1,400,000 expenses, and its investment income from Martin. Preparee an income statement for Burwood Corporation for 2012.