E4.5 Acquisition Cost, Equity Method, Eliminating Entries, Second Year Peak Entertainment LO acquires all of the stock of Saddlestone Inc. on January 1, 2020. In preparing to consolidate the trial bal- ances of Peak and Saddlestone at December 31, 2021 (two years after the acquisition), you assemble the following information: Date-of-acquisition information: Value of stock given up to acquire Saddlestone: $20,000,000. Direct merger costs: $250,000. Saddlestone's shareholders' equity: $7,200,000, consisting of capital stock, $2,000,000; retained earn- ings, $5,000,000; accumulated other comprehensive income, $200,000. Fair value of earnings contingency agreement to be paid in cash: $300,000. Fair value of previously unrecorded identifiable intangibles (5-year life): $2,000,000. There are no revaluations of Saddlestone's reported net assets. Information for 2020 and 2021: Saddlestone's reported net income for 2020: $3,000,000; for 2021: $3,500,000. Saddlestone's reported other comprehensive income for 2020: $100,000 net income; for 2021: $25,000 net loss. Saddlestone declared and paid dividends of $1,000,000 each year. Goodwill and identifiable intangibles are not impaired in 2020; goodwill is impaired by $200,000 in 2021. Required a. Prepare the 2020 and 2021 journal entries made by Peak to record its investment, using the complete equity method. b. Prepare the consolidation eliminating entries made at December 31, 2021