Problem 1.10

Hacker Corp acquires 40% of Jack Corp's voting stock on January 3, 2020 for $40 million in cash. Jack's net assets were fairly reported at $100 million at the date of acquisition. During 2020, Hacker sells $130 million in merchandise to Jack's at a markup of 30% on cost. Jack's still holds $26 million of this merchandise in its ending inventory. Also during 2020, Jack's sells $54 million in merchandise to Hacker at a markup of 20% on cost. Hacker still holds $12 million of this merchandise in its ending inventory. Jack's reports 2020 net income of $10 million and declared and paid dividends of $1 million.

a) Calculate Hacker's equity in Jack's net income for 2020. (Need to show work)

b) Calculate Hacker's investment balance at the end of 2020. (Need to show work)