The Equity Method of Accounting for Investments

Tall company purchases 20 percent of Short Company for $200,000. Tall can exercise significant influence over the investee on January 1, 2017, when Short holds net assets with a book value of $700,000. Tall believes that the investee's building (10-year remaining life) is undervalued within the financial records by $80,000 and equipment with a 5-year remaining life is undervalued by $120,000. Any goodwill established by this purchase is considered to have an indefinite life. During 2017, Short reports a net income of $150,000 and at year-end declares a cash dividend of $60,000.

1. Record the purchase of Short Company on Jan 1, 2017.

2. Record income recognition and dividend receipt on Dec 31, 2017.