Question

P Company paid $8,000,000 (cash) for an 80% interest in S Company on 7/1/07. The book values and fair values of S’s assets and liabilities on the date of acquisition were as follows:

                                                                                    Beginning of year      

	BV	FV
Cash	$400	$400
Accounts Receivable	$800	$800
Inventories	$1,400	$1,900
Other Current Assets	$900	$400
Land	$2,400	$3,800
Building (10 year life)	$1,400	$1,000
Patent (10 year life)	$1,300	$1,000
Total Assets	$8,600	$9,300
Accounts Payable	$400	$2,400
Accrued Liabilities	$1,200	$100
B/P (10 year maturity)	$1,000	$1,100
Common Stock	$5,000
Retained Earnings	$1,000
Total	$8,600

The company earned income of $24,000 ($2,000 per month) in 2007 and paid total dividends of $12,000 on October 1, 2007.

Required

1. Compute the goodwill from the acquisition
2. Compute the Equity method Income from Sub. for 2007.
3. Record the Equity method journal entries for 2007.

     4)   Analyze the Investment Account at 12/31/07

Answer 1