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Kelsey Corporation acquired 100 percent of Snowdon Companys outstanding common stock on January 1 for $654,200 in cash. Snowdon reported net assets with a carrying amount of $418,000 at that time. Some of Snowdons assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:

Asset	Book Values	Fair Values
Trademarks (indefinite life)	$ 97,000	$ 221,000
Software (5-year remaining life)	0	78,600
Equipment (10-year remaining life)	374,000	327,800

No impairment charges occurred during the year.

The following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. Snowdon declared and paid dividends in the same period. Credit balances are indicated by parentheses.

Accounts	Kelsey	Snowdon
Revenues	$ (1,372,500)	$ (688,000)
Cost of goods sold	366,000	312,000
Depreciation expense	94,500	93,600
Amortization expense	34,800	0
Income from Snowdon	(271,300)	0
Net income	$ (1,148,500)	$ (282,400)
Retained earnings, 1/1	$ (844,000)	$ (318,000)
Net income	(1,148,500)	(282,400)
Dividends declared	165,000	103,000
Retained earnings, 12/31	$ (1,827,500)	$ (497,400)
Cash	$ 249,000	$ 122,000
Receivables	414,000	85,200
Inventory	258,000	146,000
Investment in Snowdon	822,500	0
Trademarks	514,000	65,700
Software	0	0
Equipment (net)	958,000	328,000
Goodwill	0	0
Total assets	$ 3,215,500	$ 746,900
Liabilities	$ (988,000)	$ (149,500)
Common stock	(400,000)	(100,000)
Retained earnings, 12/31	(1,827,500)	(497,400)
Total liabilities and equity	$ (3,215,500)	$ (746,900)

Required:

1. Which investment method did Kelsey use to compute the $271,300 income from Snowdon?

2. Determine the totals to be reported for this business combination for the year ending December 31.

3. Verify the totals determined in part (b) by producing a consolidation worksheet for Kelsey and Snowdon for the year ending December 31.

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