On January 1, 20X3, Pumpkin Company acquired 70% of the 10,000 outstanding voting shares of Squash Limited for $770,000. The SFP and fair values for Squash Limited were:

The capital assets had a remaining useful life of 20 years. There has been no impairment of goodwill since the date of acquisition. Squash had a net income of $50,000 for the year ended December 31, 20X3, and $80,000 for the year ended December 31, 20X4. Squash paid dividends of $5,000 in 2003 and paid dividends of $10,000 in 2004.

On January 1, 20X5, Pumpkin sold 1,000 of the Squash shares for $130,000.

Required

a. Calculate the balance in the investment in the Squash account before and after the sale of the 1,000 shares, assuming Pumpkin uses the equity method.

b. Calculate the positive/negative adjustment to equity on the sale of the 1,000 shares.

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Squash Limited Statement of Financial Position December 31, 20X3 Carrying value $ 120,000 Fair market value Cash $120,000 Accounts receivable 190,000 180,000 Inventory 240,000 270,000 Capital assets (net) 700,000 820,000 $1,250,000 $ 330,000 Accounts payable 330,000 Common shares 500,000 Retained earnings 420,000 $1,250,000