Prime Company holds 90 percent of Lane Company’s stock, acquired on January 1, 20X2, for $247,500. On the date of acquisition, Lane reported retained earnings of $65,000 and $125,000 of common stock outstanding, and the fair value of the noncontrolling interest was $27,500. Prime uses the fully adjusted equity method in accounting for its investment in Lane.

Trial balance data for the two companies on December 31, 20X7, are as follows:

	Prime Company							Lane Company
Item	Debit			Credit				Debit			Credit
Cash and Accounts Receivable	$	143,000						$	58,000
Inventory		245,000							98,000
Land		105,000							90,000
Buildings and Equipment		520,000							165,000
Investment in Lane Company Stock		295,050
Cost of Goods Sold		165,000							88,000
Depreciation and Amortization		26,000							19,000
Other Expenses		23,000							13,000
Dividends Declared		68,000							37,500
Accumulated Depreciation				$	308,850						$	36,500
Accounts Payable					52,000							22,000
Bonds Payable					150,000							60,000
Common Stock					340,000							125,000
Retained Earnings					411,800							155,000
Sales					280,000							170,000
Income from Subsidiary					47,400
Total	$	1,590,050		$	1,590,050			$	568,500		$	568,500

Additional Information

1.	At the date of combination, the book values and fair values of Lane’s separately identifiable assets and liabilities were equal. The full amount of the increased value of the entity was attributed to goodwill. At December 31, 20X6, the management of Prime reviewed the amount attributed to goodwill as a result of its purchase of Lane stock and recognized an impairment loss of $20,000. No further impairment occurred in 20X7.
2.	On January 1, 20X5, Lane sold land for $5,000 that had cost $16,000 to Prime.
3.	On January 1, 20X6, Prime sold to Lane equipment that it had purchased for $75,600 on January 1, 20X1. The equipment has a total 14-year economic life and was sold to Lane for $70,200. Both companies use straight-line depreciation.
4.	Intercompany receivables and payables total $7,000 on December 31, 20X7.

Required:

a.	Prepare a reconciliation between the balance in Prime’s Investment in Lane Company Stock account reported on December 31, 20X7, and Lane’s book value. (Enter the proportion of stock held as a fraction (i.e., 0.75), not in percent.)

Answer rating: 100% (QA)

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