On January 1, 2020, Mercedez Company purchased 360 of the 900 outstanding shares of Auto Supplies Inc. for $36,000. At that date, the balance sheet of Auto Supplies Inc. showed the following values.
| Assets not subject to depreciation | $36,000 (*) |
| Assets subject to depreciation | 23,400 (**) |
| Liabilities | 5,400 (*) |
| Common stock (par $1) | 45,000 |
| Retained earnings | 9,000 |
(*) Same as fair value.
(**) Fair value $27,000; the assets have a 10-year remaining useful life (straight-line depreciation).
a. Provide the entry by Mercedez Company to record the acquisition at a cost of $36,000.
b. Assume that on December 31, 2020 (end of the accounting period), Auto Supplies Inc reported a net income of $10,800. Provide all year-end entries for Mercedez Company.
c. In February 2021, Auto Supplies Inc. declared and paid a $2 per share cash dividend. Provide the necessary entry for Mercedez Company.
