On January 1, 2010, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of $250,000, and a noncontrolling interest fair value of $245,000. Corgan attributed the excess of fair value over Smashing€™s book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following:

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2010 and 2011, 40 percent of the current year purchases remain in Smashing€™s inventory.
a. Compute the equity method balance in Corgan€™s Investment in Smashing, Inc., account as of December 31, 2011.
b. Prepare the worksheet adjustments for the December 31, 2011, consolidation of Corgan andSmashing.

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2010 2011 Net Income $150,000 130,000 Dividends 535,000 45,000 Inventory Purchases from Corgan $100,000 120,000