Alternative investment models, more complex D&D. Mast Corporation acquires a 75% interest in the common stock of Shaw Company on January 1, 2014, for $462,500 cash. Shaw has the following balance sheet on that date:
Appraisals indicate that the book values for inventory, buildings and equipment, and patent are below fair values. The inventory has a fair value of $50,000 and is sold during 2014. The buildings and equipment have an appraised fair value of $300,000 and a remaining life of 20 years. The patent, which has a 10-year life, has an estimated fair value of $50,000. Any remaining excess is goodwill. Shaw Company reports the following income earned and dividends paid during 2014 and 2015:
Prepare a determination and distribution of excess schedule (a value analysis is not needed) for the investment in Shaw Company and determine the balance in Investment in Shaw Company on Mast Corporation’s books as of December 31, 2015, under the following methods that could be used by the parent, Mast Corporation: simple equity, sophisticated equity, and cost.