The following are the financial statements of Michelangelo Corp and VanGogh Inc. prepared on December 31, 2020:

2020 INCOME STATEMENTS

Michelangelo VanGogh

Misc. revenues 926,500 270,000

Interest revenue 3,600

Dividend revenue 10,500 _

$937,000 $273,600

Misc. expenses 736,400 229,600

Interest expense 3,600

Income tax expense 80,000 20,000

$820,000 249,600

Net income $117,000 $ 24,000

2020 RETAINED EARNINGS STATEMENTS

Bal, Jan 1 $153,000 $ 72,000

Net income 117,000 24,000

289,800 96,000

Dividends 50,000 15,000

Bal. Dec 31 $220,000 $ 81,000

BALANCE SHEETS December 31, 2020

Misc. Assets $535,125 $211,000

Note Receivables 60,000

Investment in VanGogh 56,875 -------

$592,000 $271,000

Misc. Liabilities $212,000 $140,000

Note Payable 60,000

Common Shares 100,000 50,000

Retained Earnings 220,000 81,000

$592,000 $271,000

Other information:

1. Michelangelo acquired 70% of VanGogh on January 1, 2019 at a cost of $56,875. On this date VanGogh retained earnings amounted to $10,000, and the acquisition differential was entirely allocated to goodwill. Impairment tests conducted yearly since acquisition yielded a loss of $3,000 in 2019 and a further loss of $2,250 in 2020. Michelangelo uses the cost method to account for the investment.

Use the entity theory for calculations.

2. The December 31, 2020 inventory of Michelangelo contained purchases made from VanGogh amounting to $10,000. VanGogh sells to Michelangelo at a 40% gross profit.

3. On July 1, 2020 Michelangelo borrowed $60,000 from VanGogh and signed a note bearing interest at 12% per year.

4. Both companies pay income tax at a rate of 40%.

REQUIRED:

Calculate the balance in the Investment in VanGogh account as at December 31, 2020, if Michelangelo had used the equity method.