Equity Method and Eliminating Entries Three Years After Acquisition

Puffin Industries acquired all of Sunset Coast Digital's stock on January $1,2021,$ for $$5,000,000,$$$3,600,000$ in excess of book value. At that time, Sunset Coast's inventory $($LIFO$)$ was overvalued by $$400,000$ and its plant assets $(10-$year life$)$ were overvalued by $$500,000.$ Previously unreported identifiable intangible assets were valued at $$1,000,000,$ and amortized over $5$ years. Goodwill from this acquisition was impaired by $$100,000$ in $2022.$ Sunset Coast depreciates plant assets and amortizes intangibles by the straight$-$line method. During $2021$ and $2022,$ Sunset Coast reported total net income of $$850,000$ declared and paid $50$ percent in dividends. Puffin carries its investment in Sunset Coast using the complete equity method. Sunset Coast's inventory increased each year since it was acquired by Puffin, Sunset Coast's reported net income for $2023$ was $$400,000,$ and dividends totaled $50$ percent of reported income.

Required

a$.$ Compute Puffin's $2023$ equity in net income of Sunset Coast.

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b$.$ Compute the balance in the Investment in Sunset Coast account at December $31,2023,$ after all equity method entries have been booked.

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c$.$ Prepare the working paper eliminating entries needed in consolidation at December $31,2023.$

$\backslash$table$[[$Consolidation Journal$],[$Ref$.,$Description,,Debit,Credit$],[($C$),$Equity in net income of Sunset Coast,$,600,000,0],[,$Goodwill,$-,1,000,000,0],[,$Investment in Sunset Coast,,$0,1,600,000],[($E$),$Equity in net income of Sunset Coast,$-,150,000,0],[,$Investment in Sunset Coast,$,0,150,000],[($R$),$Plant assets net,$,0,0]]$