II$.$ Recording Business Combinations $(22$ points$)$

Assume that on January $1,2020,$ an investor company acquired $100\%$ of the outstanding voting common stock of an investee company in exchange for $$140,000$ worth of investor company common stock. The following financial statement information is for the investor company and the investee company on January $1,2020,$ prepared immediately before this transaction.

Book Values

Investor

Investee

Current assets

$95,000$

$61,000$

Noncurrent assets

$298,000$

$116,000$

Total assets

$393,000$

$177,000$

Liabilities

$172,000$

$95,000$

Common stock $($$$1$ par$)$

$21,000$

$11,000$

Additional paid$-$in capital

$123,000$

$53,000$

Retained earnings

$77,000$

$18,000$

Total liabilities & equity

$393,000$

$177,000$

$$

Assume that the fair values of the investee$$s net assets approximated the recorded book values of the investee$$s net assets, except the fair value of the investee$$s identifiable noncurrent assets is $$20,000$ higher than book value. In addition, the investee$$s pre$-$transaction tax bases in its individual net assets approximate their reported book values. Any book$-$tax differences relate entirely to tax$-$deductible items. Assume the marginal tax rate is $40\%$ for the investor and investee.

Required: $($Parts A and B are independent of each other$)$

PART A

The transaction is a taxable asset acquisition under the Internal Revenue Code. As part of the acquisition, the investor agreed to pay investee$$s selling shareholders additional compensation $($on March $15,2022)$ if investee$$s operations achieved $$30,000$ in net income during the year ended December $31,2020$ and $$35,000$ in net income during the year ended December $31,2021.$ The fair value of this provision is $$20,000$ on January $1,2020.$ Investor uses the equity method to account for its investment in Investee. For Part A$,$ assume any AAP generated from the transaction is non$-$amortizable and the investee paid no dividends in $2020.$

Investee earned $$31,000$ of net income and $$6,000$ of other comprehensive income during the year ended December $31,2020.$ There were no intercompany sales in $2020.$

$$

$1.$ What is the balance in the $$Investment in Investee$$ account immediately following the acquisition?