Problem 2 Hoyle, Schaefer and Doupnik - Chapter 5 Modified Problem 18 I define intercompany sales to be Upstream instead of Downstream On January 1, 2020, Corgan Company acquired 80% of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of $250,000, and a non-controlling interest fair value of $245,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following: 2020 2021 And Corgan reported: Net Income 150,000 130,000 Dividends 35,000 45,000 Inventory purchases from Smashing 100,000 120,000 Smashing sells inventory to Corgan using a 60% markup on cost. At the end of 2020 and 2021, 40% of the current year purchases remain in Corgan's inventory