Problem 3-8 (LO 3, 5) Cost method, 80% interest, worksheet, several adjustments.

Detner International purchased 80% of the outstanding stock of Hughes Company for $1,600,000 plus $8,000 of direct acquisition costs on January 1, 20X5. At the purchase date, the inventory, the equipment, and the patents of Hughes Company had fair values of $10,000, $50,000, and

$100,000, respectively, in excess of their book values. The other assets and liabilities of Hughes Company had book values equal to their fair values. The inventory was sold during the month following the purchase. The two companies agreed that the equipment had a remaining life of 8 years and the patents, 10 years. On the purchase date, the owners’ equity of Hughes Company was as follows:

Common stock ($10 stated value) . . . . . . . . . . . . $1,000,000 Additional paid-in capital . . . . . . . . . . . . . . . . . . 300,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . 400,000 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000