On January 1, 2017, Palka, Inc., acquired 70 percent of theoutstanding shares of Sellinger Company for $1,274,000 in cash. Theprice paid was proportionate to Sellinger’s total fair value,although at the acquisition date, Sellinger had a total book valueof $1,540,000. All assets acquired and liabilities assumed had fairvalues equal to book values except for a patent (six-year remaininglife) that was undervalued on Sellinger’s accounting records by$270,000. On January 1, 2018, Palka acquired an additional 25percent common stock equity interest in Sellinger Company for$512,500 in cash. On its internal records, Palka uses the equitymethod to account for its shares of Sellinger.
During the two years following the acquisition, Sellingerreported the following net income and dividends:
| 2017 | 2018 |
| Net income | $ | 505,000 | | $ | 626,000 | |
| Dividends declared | | 170,000 | | | 200,000 | |
|
Show Palka’s journal entry to record its January 1, 2018,acquisition of an additional 25 percent ownership of SellingerCompany shares.
Prepare a schedule showing Palka’s December 31, 2018, equitymethod balance for its Investment in Sellinger account.
