Shelby Corporation acquired 30 percent of the voting stock of Polly Gray Corporation on January 2, 2019, for $3.2 million in cash. Polly Grays balance sheet and estimated fair values of its assets and liabilities on January 2, 2019 are as follows (in thousands).

In addition to its reported assets, Polly Gray has unreported franchise agreements (5-year life) valued at $1 million. Its property and equipment has a 20-year average remaining life. Polly Gray reported income of $1.5 million and paid no dividends in 2019. Please note that Polly Gray uses the FIFO inventory method and all the inventory is sold by the end of the year.

Required A. How many shares of Polly Gray stock did Shelby acquire? Please show calculations so that partial credit can be

granted.

B. Prepare a schedule, in good form, that shows the computation of Shelbys equity in Polly Grays net income for 2019. Please show calculations so that partial credit can be granted.

Fair Value 600 700 500 2,000 700 Polly Gray Corporation Balance Sheet January 2, 2019 Book Value Assets Cash and receivables 600 Inventory 1,200 Investments 500 Land 800 Property and equipment 4,000 Accumulated depreciation (1,500) TOTAL ASSETS 5,600 Liabilities and Equity Current liabilities 900 Long-term liabilities 3,000 Common stock, $2.00 par Additional paid-in capital Retained earnings 800 Accumulated other comprehensive income (600) TOTAL LIABILITIES AND EQUITY 5,600 4,500 900 3,000 600 900 3,900