Question 1 (42 points)

Upon formation of Ramp Co. in June 1987, Pond Co. acquired ten percent of the voting common shares at the par value of $10,000. Ramp has not issued any further shares since its inception.

On January 1, 2015, Pond acquired an additional 30% of the outstanding voting common shares of Ramp for $550,000. On that date, Ramp reported assets and liabilities with book values of $2.2 million and $700,000, respectively. A building owned by Ramp had an appraised value of $300,000, although it had a book value of only $120,000. This building had a 12-year remaining life and no salvage value. It was being depreciated on the straight-line basis.

Ramp generated net income of $300,000 in 2015 and a loss of $120,000 in 2016. In each of these two years, Ramp paid a cash dividend of $70,000 to its stockholders. During 2015, Ramp sold inventory to Pond that had an original cost of $60,000. The merchandise was sold to Pond for $96,000. Of this balance, $72,000 was resold to outsiders during 2015 and the remainder was sold during 2016. In 2016, Ramp sold inventory to Pond for $180,000. This inventory had cost only $108,000. Pond resold $120,000 of the inventory during 2016 and the rest during 2017.

Required:

For 2015 and then for 2016, prepare the journal entries in Ponds books in respect of its investment in Ramp given that this investment is correctly classified as an equity investment.