Harcker Corporation

Harcker Corporation acquires 5% of the outstanding voting shares of Jackson Corporation on January 1, 2012, for $100,000 when Jackson Corporation has a book value of $1,500,000. Harcker Corporation categorizes the investment as an available-for-sales security. An additional 30% of the stock is purchased on January 1, 2013, for $651,000, which gives Harcker Corporation the ability to significantly influence Jackson Corporation.

The following information is available for Jackson Corporation


Net Income for 2012,2013 and 2014 was 700,000 750,000 900,000 Dividends 150,000 100,000 100,000

The Fair Value of Jackson Corporation’s stocks at December 31, 2012 was $2,170,000
The book values of Jackson Corporation’s asset and liability accounts are considered as equal to fair values except for a Customer List whose value accounted for Harcker Corporation’s excess cost in each purchase. The Customer List had a remaining life of 10 years at January 1, 2012. Harcker Corporation uses the equity method.

Required:
1. Prepare the January 1, 2013, journal entry to retrospectively adjust the Investment in Jackson Corporation account to the equity method. Show all your calculations (2 points)
2. On comparative income statements issued in 2014 by Harcker Corporation for 2012 and 2013, what amounts of income would be reported in connection with the company’s investment in Jackson Corporation? Show all your calculations. Hint: Remember the retrospective adjustment was recorded in 2013. (1 points)
3. If Harcker Corporation sells its entire investment in Jackson Corporation on January 1, 2015, for $1,300,000 cash, what is the impact on Harcker Corporation’ income? Show all your calculations (2 points)
4. Assume that Harcker Corporation sell inventory to Jackson Corporation during 2013 and 2014 as follow

Cost to Harcker Corporation 2013: 35,000, 2014: 33000
Price to Jackson corporation 2013: 50,000, 2014: 60,000
Year-End balance (at transfer price) 2013: 20,000, 2014: 40,000
What amount of equity income should Anderson recognize for the year 2013? Show all your calculations