Harper acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2014, for $210,000 in cash. The book value of KinmanAc?cs net assets on that date was $400,000, although one of the companyAc?cs buildings, with a $60,000 carrying amount, was actually worth $100,000. This building had a 10-year remaining life that was undervalued by $85,000.
Kinman sold inventory with an original cost of $60,000 to Harper during 2014 at a piece of $90,000. Harper still held $15,000(transfer price) of this amount in inventory as of December 31,2014. These goods are to be sold to outside parties during 2015.
Kinman reported a $40,000 net loss and a $20,000 other comprehensive loss for 2014. The company still manages to declare and pay a $10,000 cash dividend during the year.
During 2015, Kinman reported a $40,000 net income and declared and paid a cash dividend of $12,000. It made additional inventory sales of $80,000 to Harper during the period. The original cost of the merchandise was $50,000. All but 30 percent of this inventory had been resold to outside parties by the end of the 2015 fiscal year.
Prepare all journal entries for Harper for 2014 and 2015 in connection with this investment. Assume the equity method is applied.