TYou are working for an independent auditor assigned to the audit of the financial statements of the client, Blane Corp. for their fiscal year ending December 31, 2018. You have been tasked to audit Blane Corp.'s Investment in LYN Inc Account. You notice on the Trial Balance for December 31, 2018 that the balance in the Investment in LYN Inc. Account is $4,618,200. You have obtained other relevant information regarding Blane Corp's investment in LYN Inc: On January 1, 2018, Blane Corp. purchased 30% of the voting common stock of LYN Co. paying $4,200,000. At the time of the acquisition, LYN's book value was $13,000,000. Blane Corp had gathered the following information about LYN's assets and liabilities: Useful Book Fair Life Value Value Land n/a 300,000 800,000 Buildings 20 Yrs. 500,000 700,000 Equipment 10 Yrs. 1,000,000 1,100,000 For all other assets and liabilities, book value and fair value were equal. For fiscal year 2018 LYN Inc. realized $1,400,000 of net income and paid dividends of $280,000. During the year Blane Corp sold inventory costing $50,000 to SOLYN for $100,000. At the end of the year LYN still had $12,000 of this merchandise in inventory. You reviewed the Blane Corp's General Journal report and noted the following journal entries made to the Investment in LYN Inc Account: Debit Credit 4,200,000 Investment in LYN Inc. Cash To record investment in LYN Inc. 1/1/2018 4,200,000 Investment in LYN Inc. 420,000 Equity in income of LYN Inc. To record pro rate share of income from investment in LYN Inc. 420,000 Cash 84,000 Dividend income To record pro rate share of dividends from investment in LYN Inc. 84,000 1,800 Equity in income of LYN Inc. Investment in LYN Inc. Defer gross profit on sales of inventory to LYN Inc 1,800 a. Determine if the Investment in LYN Inc. account balance on Blane Corp's 12/31/2018 Trial Balance is correct and consistent with Generally Accepted Accounting Principles. To do this prepare an analysis of the Investment in LYN Inc. account consistent with GAAP for accounting for investments under the Equity Method to support your conclusion. Start with the beginning investment balance as of 1/1/2018 and conclude with a correct ending investment balance as of 12/31/2018. Show all items that affect the Investment account for 2018. SHOW ALL WORK IN SUPPORT OF YOUR ANSWER. ANALYSIS OF INVESTMENT IN LYN INC ACCOUNT 1/1/2018 TO 12/31/2018 Beginning balance Investment in LYN Inc 1/1/2018 $ - Ending balance Investment in LYN Inc. 12/31/2018 per your analysis $ 4,618,200 Dane Corp Investment in LYN Inc. per Trial Balance 12/31/2018 Is the Blane Corp. Trial Balance account balance correct? Circle answer YES NO b. If the balance in Blane Corp.'s Investment in LYN Inc. needs to be adjusted, recommend the journal entry (entries) that Blane Corp should make to adjust the balance in the Investment in LYN Inc. account so the ending balance would reflect GAAP under the Equity Method. Trial Balance - Investment in LYN INC. $ 4,618,200
