Easton Company acquires 40 percent of the outstanding voting shares of Harris Company on January 1,2016. To

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Question:

Easton Company acquires 40 percent of the outstanding voting shares of Harris Company on January 1,2016. To obtain these shares, Easton pays $78,000 in cash. Harris's book value of stockholders' equity is $140,000. Easton believes that (1) Harris buildings are undervalued by $20,000, and (2) Harris has an unrecorded patent that Easton values at $15,000. Easton considers the remaining balance sheet items to be fairly valued (no book-to-fair value difference). The remaining $20,000 of the purchase price excess over book value is ascribed to corporate synergies and other general unidentifiable intangible assets (goodwill). The January 1,2016, balance sheets at the acquisition date follow:

	Easton Company	Harris Company
Cash	$42,000	$20,000
Receivables	80,000	45,000
Inventory	110,000	65,000
Investment in Harris	195,000	-
Land	50,000	30,000
Buildings, net	200,000	55,000
Equipment, net	60,000	25,000
Total assets	$737,000	$240,000
Accounts payable	$80,000	$15,000
Long-term liabilities	190,000	85,000
Common stock	250,000	20,000
Additional paid-in capital	37,000	-
Retained earnings	180,000	120,000
Total liabilities & equity	$737,000	$240,000

Assume that the undervalued buildings have an estimated remaining useful life of 20 years and the unrecorded patent has a useful life of 5 years. During 2016, Harris reported net income of $40,000 and paid cash dividends to shareholders totaling $20,000.

a. Prepare journal entries to record Easton Company's equity in the earnings of Harris Company, including any amortization of the excess of fair value over book value of assets acquired.