Problem I. On January 1, 2019, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000 cash. On that date, S Companys stockholders equity consisted of common stock, $150,000; other contributed capital, $200,000; and retained earnings, $350,000. P Corp paid more than the book value of net assets acquired because the recorded cost of S Corps equipment (5 year remaining useful life) was $40,000 less than its fair value; the remainder was allocated to goodwill. There were acquisition related costs of $40,000 at the date of acquisition. During 2019 S Corp earned $240,000 and declared and paid a $80,000 dividend. P Corp used the equity method to record its investment in S Corp. In addition, P Corp sold (transferred) $100,000 of goods to S Corp on account. The goods cost P Corp $60,000.

At the end of 2019, approximately $20,000 of the transfer remains unsold. During 2020 S Corp earned $280,000 and declared and paid a $90,000 dividend. The unsold goods from 2019 were all sold to 3rd parties. In addition, P Corp. sold (transferred) $120,000 of goods to S Corp on account. The goods cost P Corp $90,000.

At the end of 2020, approximately $30,000 of the transfer remains unsold. Instructions: Please insert or type in your answers below. Please feel free to insert or delete space as needed:

1. Calculate the implied value of S Corp at January 1, 2019.

2. Prepare and compute the allocation of the difference between implied and book value as of January 1, 2019.

3. Prepare the journal entries to record the acquisition of S Corp at January 1, 2019. Prepare the T-account for the Investment in S Corp and Retained Earnings-S.

4. Prepare the journal entries on P Corps books (other than the acquisition entries in 3) to record S Corps income and dividends during 2019, as well as any other necessary journal entries during the year.

5. Prepare the worksheet entries at December 31, 2019.

6. Prepare the journal entries on P Corps books to record S Corps income and dividends during 2020, as well as any other necessary journal entries during the year.

7. Prepare the worksheet entries at December 31, 2020.