QUESTION $1(15$ marks$)$

On January $1,2020$ Pinecone Ltd$.$ purchased $90\%$ of Sharbot Co$.$ at a cost of $$225,000.$ On this date, Sharbot$$s shareholders$$ equity was as follows:

Common shares $(10,000)$ $$100,000$

Retained earnings $110,000$

$$210,000$

$$ The book values of all of Sharbot$$s net assets were equal to fair market value, except for specialized equipment, which was undervalued by $$40,000$

$$ The equipment had an estimated useful life of $5$ years

$$ On July $1,2020,$ Sharbot issued an additional $2,000$ shares for $$75,000.$ Pinecone did not acquire any of these shares.

$$ On October $1,2020$ Sharbot$$s share price had fallen to $$30$ per share. Pinecone purchased $1,000$ shares at this price on the open market.

$$ On December $31,2020$ Sharbot reports a net income of $$40,000($earned evenly throughout the year$)$ and declared dividends of $$10,000$

REQUIRED:

a$)$ Prepare an acquisition differential schedule for $2020$ showing the controlling and non controlling interest$$s share of the changes occurring throughout the year. $(8$ marks$)$

b$)$ Calculate the equity method balance in the investment in Sharbot account as at December $31,2020.(7$ marks$)$

Clearly show all calculations for impact of ownership changes.

Please explain the steps you take