Reference no: EM133120913
Question - Solac Company acquires 30% of the voting stock of Talgo Corporation on January 1, 2019 for $ 25,000,000. The book value of Talgo's stock at the time of purchase was $ 40,000,000. Book values approximated fair values except for a building that was overvalued by $ 10,000,000 (10 year life), equipment that was undervalued by $ 4,000,000 (4 year life) and previously unrecorded intangibles of $ 20,000,000 (indefinite life). It is now Decemer 31, 2021. Solac sells merchandise to Talgo at a markup of 25% on cost. Talgo sells merchandise to Solac at a markup of 20% on cost. are the inventory balances : Date Inventory held by Solac Inventory held by Talgo December 31, 2020 3,000,000 1,000,000 December 31, 2021 3,120,000 1,025,000 Talgo reports net income of $ 1,300,000 in 2019; $1,500,000 in 2020 and $ 1,600,000 in 2021. Talgo pays no dividends during this period.
Required -
a. Calculate equity in net income of Talgo, reported on Solac's 2021 income statement.
b. Calculate the balance in Investment in Talgo as of December 31, 2021.
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