January 1, 2019, Above Co. purchased a 30% interest in Below Co. An acquisition differential of $50,000
Question:
January 1, 2019, Above Co. purchased a 30% interest in Below Co. An acquisition differential of $50,000 was identified and allocated to equipment, which had an estimated remaining useful life of 10 years. During 2019, Below Co. sold merchandise it had purchased for $60,000 to Above Co. for $100,000. At the end of 2019, Above Co. held 50% of this merchandise in its inventory. For 2019, Below Co. reported net income of $100,000 and paid dividends of $20,000. Both companies are subject to 40% tax rates.
If Above Co. uses the equity method to account for its investment in Below Co., how much investment income will it report in 2019?
1. 13000
2. 21400
3. 22600
4. 17000
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield