Aspen Co. acquired 40% of the outstanding voting common shares of Vail Co. for $700,000 on January 1, 2014. On that date, Vail reported assets and liabilities with book values of $2.2 million and $700,000, respectively. Vail owned a building with an appraised value of $300,000 and a book value of only $120,000. This building had a 12-year remaining life, no salvage value, and it was being depreciated on the straight-line basis.
In 2014 Vail reported net income of $300,000, but in 2015 Vail sustained a net loss of $120,000. In each of these two years, Vail declared and paid a cash dividend of $70,000 to its stockholders.
During 2014, Vail sold inventory to Aspen that had an original cost of $60,000. Vail sold the merchandise to Aspen for $96,000 and Aspen resold $72,000 (at Aspen’s cost) of this amount to outsiders during 2014. Aspen sold the remainder of the merchandise during 2015. In 2015, Vail sold inventory to Aspen for $180,000. This inventory had cost Vail $108,000. Aspen resold $120,000 (at Aspen’s cost) of this merchandise during 2015, and the remainder during 2016.
Note: For each of the following questions, show work and clearly label all computations/components of balances. Please round percentages to one decimal place and dollar amounts to whole dollars.
a. Calculate the Equity in Vail’s Earnings that Aspen should report for 2014.
b. Calculate the Equity in Vail’s Earnings that Aspen should report for 2015.
c. Prepare Aspen’s 2015 journal entry(ies) related to inter-entity inventory profit.
d. What balance should Aspen report for its Investment in Vail account at December 31, 2015?