Question

On January 1, 2014, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,428,700 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,710,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $321,000. On January 1, 2015, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $548,125 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.

During the two years following the acquisition, Sellinger reported the following net income and dividends:

	2014	2015
Net income	$ 495,000	$ 615,000
Dividends	190,000	220,000

a.	Prepare Palka’s journal entry to record its January 1, 2015, acquisition of an additional 25 percent ownership of Sellinger Company shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b.	Prepare a schedule showing Palka’s December 31, 2015, equity method balance for its Investment in Sellinger account. (Amounts to be deducted should be indicated with a minus sign.)

For Part A I know the amount of Cash in the trransaction should be $548,125

However I am unsure of the amount to debit for the investment in S and what to credit for the Additional paid-in capital. I thought it would be 70% of the book value, but was wrong.