Equity Method Investment with Basis Differences Several Years Later

Saxton Corporation purchased 25 percent of Taylor Company's voting stock on January 1, 2013, for $3 million in cash. At the date of acquisition, Taylor reported its total assets at $60 million and its total liabilities at $56 million. Investigation revealed that Taylor's plant and equipment (15-year life) was overvalued by $1.8 million and it had an unreported customer database (2-year life) valued at $500,000. Taylor declares and pays $100,000 in dividends and reports net income of $250,000 in 2016.

Required Prepare the necessary journal entries on Saxton's books to report the above information for 2016 assuming Saxton uses the equity method to report its investment.

Enter answers in thousands. For example, $1 million is $1,000 and $100,000 is $100.

Calculation of 2016 Equity in Taylor's Net Income:

Saxton's share of Taylor's reported income	$Answer
+/- Revaluation adjustments	Answer
Equity in net income of Taylor	$Answer

General Journal
Date	Description	Debit	Credit
1/1/16	AnswerCashInvestment in TaylorEquity in net income of Taylor	Answer	Answer
	AnswerCashInvestment in TaylorEquity in net income of Taylor	Answer	Answer
12/31/16	AnswerCashInvestment in TaylorEquity in net income of Taylor	Answer	Answer
	AnswerCashInvestment in TaylorEquity in net income of Taylor	Answer	Answer