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Patrick Corporation acquired 100 percent of OBrien Companys outstanding common stock on January 1 for $676,500 in cash. OBrien reported net assets with a carrying amount of $410,000 at that time. Some of OBriens assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:

	Book Values		Fair Values
Trademarks (indefinite life)	$	105,500	$	262,500
Customer relationships (5-year remaining life)		0		79,800
Equipment (10-year remaining life)		430,000		378,400

Any goodwill is considered to have an indefinite life with no impairment charges 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. OBrien declared and paid dividends in the same period. Credit balances are indicated by parentheses.

	Patrick				O'Brien
Revenues	$	(1,822,500	)		$	(548,000	)
Cost of goods sold		486,000				242,000
Depreciation expense		80,400				99,000
Amortization expense		25,800				0
Income from O'Brien		(196,200	)			0
Net income	$	(1,426,500	)		$	(207,000	)
Retained earnings 1/1	$	(864,000	)		$	(310,000	)
Net income		(1,426,500	)			(207,000	)
Dividends declared		158,000				96,000
Retained earnings 12/31	$	(2,132,500	)		$	(421,000	)
Cash	$	284,000			$	120,000
Receivables		244,000				65,700
Inventory		230,000				169,000
Investment in O'Brien		776,700				0
Trademarks		474,000				78,000
Customer relationships		0				0
Equipment (net)		1,036,000				303,000
Goodwill		0				0
Total assets	$	3,044,700			$	735,700
Liabilities	$	(512,200	)		$	(214,700	)
Common stock		(400,000	)			(100,000	)
Retained earnings 12/31		(2,132,500	)			(421,000	)
Total liabilities and equity	$	(3,044,700	)		$	(735,700	)

1. Which investment method did Patrick use to compute the $196,200 income from O'Brien?

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 Patrick and OBrien for the year ending December 31.

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