Pep Corporation owns 40 percent of the outstanding voting stock

Pep Corporation owns 40 percent of the outstanding voting stock of Sat Corporation, acquired for $100,000 on July 1, 2011, when Sat’s common stockholders’ equity was $200,000. The excess of investment fair value over book value acquired was due to valuable patents owned by Sat that were expected to give Sat a competitive advantage until July 1, 2016. Sat’s net income for 2011 was $40,000 (for the entire year), and for 2012, Sat’s net income was $60,000. Pep’s December 31, 2011 and 2012, inventories included unrealized profit on goods acquired from Sat in the amounts of $4,000 and $6,000, respectively. At December 31, 2011, Pep sold land to Sat at a gain of $2,000. This land is still owned by Sat at December 31, 2012.

REQUIRED

1. Compute Pep’s investment income from Sat for 2011 on the basis of a one-line consolidation.

2. Compute Pep’s investment income from Sat for 2012 on the basis of a one-line consolidation.


Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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