Reference no: EM132608178

Question - On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,190,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $850,000, retained earnings of $400,000, and a noncontrolling interest fair value of $510,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.

During the next two years, Smashing reported the following:

2017 Net Income: 300,000

2017 Dividends Declared: 50,000

2017 Inventory Purchases from Corgan: 250,000

2018 Net Income: 280,000

2018 Dividends Declared: 60,000

2018 Inventory Purchases from Corgan: 270,000

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 50 percent of the current year purchases remain in Smashing's inventory.

Required -

1. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.

2. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.