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Question - On January 2, 2016, East Company acquired 30% of the stocks of West Company for $20 million in cash. East Company accounts for its investment using the equity method. At the time of acquisition, West Company's balance sheet was as follows (in millions):
Assets
Liab. and equity
Current Assets
20
Current Liabilities
42
Property and equipment, net
415
Long-term debt
518
Patents and trademarks
150
Capital Stock
12
Retained earnings
13
Total Assets
585
Total Liabilities and Equity
Valuation of West's assets and liabilities revealed that its reported patents and trademarks (10- year life) had a fair value of $160 million and it had unrecognized brand names (15-year life) worth $9 million. West's December 31, 2018, retained earnings balance is $25 million. For 2018, it reported net income of $2.5 million and paid $650,000 in dividends.
Required -
1. Prepare the 2018 entries to report the above information on East's books? Show all your calculations.
2. Calculate the Investment in West Company, reported on East's December 31, 2018 balance sheet. Show all your calculations.
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