Response to the following problem:
Assume that on 1/1/01 Big acquired 80% of Little Co for $400,000. The fair value of the non-controlling interest on that date was $100,000. Little's book value on that date was $350,000. All of Little's assets and liabilities had fair values equal to book value, except:
Land, undervalued by $40,000
Inventory (FIFO basis), overvalued by $20,000
Patents, 5 year remaining life, undervalued by $30,000
Bonds payable, 10 year remaining life, overvalued by $15,000 (straight-line amortization).
During 2001, Little reported earnings of $60,000, and paid dividends of $20,000.
Required:
Prepare all equity method entries for 2001
Prepare all elimination entries for 2001.