Easy Chair Company purchased 40 percent ownership of Stuffy Sofa Corporation on January 1, 20X1, for $150,000. Stuffy Sofa€™s balance sheet at the time of acquisition was as follows:

During 20X1 Stuffy Sofa Corporation reported net income of $30,000 and paid dividends of $9,000. The fair values of Stuffy Sofa€™s assets and liabilities were equal to their book values at the date of acquisition, with the exception of buildings and equipment, which had a fair value $35,000 above book value. All buildings and equipment had remaining lives of five years at the time of the business combination. The amount attributed to goodwill as a result of its purchase of Stuffy Sofa shares is not impaired.

Required
a. What amount of investment income will Easy Chair Company record during 20X1 under equity-method accounting?
b. What amount of income will be reported under the cost method?
c. What will be the balance in the investment account on December 31, 20X1, under,
(1) costmethod and
(2) equity-methodaccounting?

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STUFFY SOFA CORPORATION Balance Sheet January 1, 20X1 30,000 Current Liabilities 120,000 Bonds Payable 80,000 Common Stock Cash Accounts Receivable Inventory Land Buildings & Equipment Less: Accumulated Depreciation Total Assets S 40,000 200,000 200,000 150,000 Additional Paid-In Capa 40,000 $ 30,000 (120,000) 180,000 5560,000 Retained Earnings Total Liabilities & Equities 80,000 $560,000