Ranee Corporation paid $10 million in cash to acquire 30 percent of the voting stock of Seaway

Question:

Ranee Corporation paid $10 million in cash to acquire 30 percent of the voting stock of Seaway Company on January 2,2012. Ranee uses the equity method to report its investment. Seaway's book value at date of acquisition was $25 million. Analysis of Seaway's assets and liabilities reveals that Seaway's property and equipment (10-year life) was overvalued by $4 million, and its reported intangibles (2-year life) were undervalued by $6 million.
During the years 2012 and 2013, Seaway reported total income of $14 million, paid dividends of $5 million, and reported net unrealized gains on AFS securities of $1 million. During 2014, Seaway reported income of $4 million, paid dividends of $1.5 million, and reported net unrealized losses on AFS securities of $800,000.
Ranee sells merchandise to Seaway at a markup of 20 percent on cost. Seaway sells merchandise to Ranee at a markup of 25 percent on cost. Below are the inventories on hand at each date, related to these sales

Required
a. Calculate Ranee's equity in net income of Seaway for 2014.
b. Prepare Ranee's journal entries to report its investment in Seaway for 2014.
c. Calculate the investment balance at December 31,2014.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...