Prepare journal entires and income statement

BIP Corp paid 195,000 for a 30% interest in Crown Corp on 12-31-2006, when Crown’s equity consisted of $500,000 capital stock and $200,000 retained earning. The price paid by BIP reflected the fact that Crown’s inventory (FIFO) was overvalued by $50,000. The overvalued inventory items were sold in 2007.

During 2006 Crown paid dividends of $100,000 and reported income as following

Income before extraordinary items $170,000
Extraordinary loss (net of tax effect) 20,000
Net income 150,000

1. Preparre all journal entries necessary to account for BIP’s investment in Crown for 2007
2. Determine the correct balance of BIP’s investment in Crown account at 12-31-2007
3. Assume that BIP’s net income for 2007 consists of $1,000,000 sales, $700,000 expenses, and its investment income from Crown. Prepare an income statement for BIP Corp for 2007

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