Pop Corporation paid $780,000 for a 30 percent interest in Son Corporation on December 31, 2016, when Son's stockholders' equity consisted of $2,000,000 capital stock and $800,000 retained earnings. The price paid by Pop reflected the fact that Son's inventory (on an FIFO basis) was overvalued by $200,000. The overvalued inventory items were sold in 2017.
During 2017 Son paid dividends of $400,000 and reported income as follows (in thousands):
Income from continuing operations .......................................... $680
Discontinued operations loss (net of tax effect) ............................. (80)
Net income ...................................................................... $600
Required
1. Prepare all journal entries necessary to account for Pop's investment in Son for 2017.
2. Determine the correct balance of Pop's Investment in Son account at December 31, 2017.
3. Assume that Pop's net income for 2017 consists of $4,000,000 sales, $2,800,000 expenses, and its investment income from Son. Prepare an income statement for Pop Corporation for 2017?