Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 8

On January 1, 2012, 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 Smashing's book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2012 and 2013, 40 percent of the current year purchases remain in Smashing's inventory.
a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2013.
b. Prepare the worksheet adjustments for the December 31, 2013, consolidation of Corgan and Smashing.