On January 1, 2010, Corgan Company acquired 80 percent of the outstand

QUESTION

On January 1, 2010, Corgan Company acquired 80 percent of the outstanding voting stock of smashing, Inc., for a total of 980,000 in cash and other consideration, at the acquisition date, smashing had common stock of 700,000 retained earnings of 250,000 and a noncontrolling interest fair value of 245,000. Corgan attributed the excess of fair value over smashings book value to various covenants with a 20 year life. Corgan uses the equity method to accounts for its investment in smashing, during the next two years, smashing reported the following: net income dividends inventory purchases from Corgan 2010 150,000 35,000 100,0002011 130,000 45,000 120,000Corgan sells inventory to smashing using a 60 percent markup on cost. at the end of 2010 and 2011, 40 percent of the current year purchase remain in smashings inventory.a. compute the equity method balance in Corgans investment in smashing, inc., account as of December 31, 2011. b. prepare the worksheet adjustment for the December 31, 2011, consolidation of Corgan and smashing.
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