Question: Equity Method Investment with Basis Differences Several Years Later STU Corporation purchased 28 percent of VWX Company's voting stock on January 1, 2014, for 4.2

Equity Method Investment with Basis Differences Several Years Later

STU Corporation purchased 28 percent of VWX Company's voting stock on January 1, 2014, for £4.2 million in cash. At the date of acquisition, VWX reported its total assets at £75 million and its total liabilities at £68 million. Investigation revealed that VWX's land (indefinite life) was overvalued by £2.5 million and it had an unreported technology (3-year life) valued at £800,000. VWX declares and pays £130,000 in dividends and reports net income of £290,000 in 2022.

Required: Prepare the necessary journal entries on STU's books to report the above information for 2022 assuming STU uses the equity method to report its investment.

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