On January 1, 2017, Corgan Company acquired 70 percent of theoutstanding voting stock of Smashing, Inc., for a total of $805,000in cash and other consideration. At the acquisition date, Smashinghad common stock of $740,000, retained earnings of $290,000, and anoncontrolling interest fair value of $345,000. Corgan attributedthe excess of fair value over Smashing's book value to variouscovenants with a 20-year remaining life. Corgan uses the equitymethod to account for its investment in Smashing.
During the next two years, Smashing reported the following:
| 2017 | 2018 |
| Net Income | $190,000 | $170,000 |
| Dividends Declared | $39,000 | $49,000 |
| Inventory Purchases from Corgan | $140,000 | $160,000 |
Corgan sells inventory to Smashing using a 60 percent markup oncost. At the end of 2017 and 2018, 30 percent of the current yearpurchases remain in Smashing's inventory.
a.) Compute the equity method balance inCorgan's Investment in Smashing, Inc., account as of December 31,2018.
b.) Prepare the worksheet adjustments for theDecember 31, 2018, consolidation of Corgan and Smashing.
