2. On January 1,20X6, SyntheticInc.(SI) paid $300,000 cash to acquire 30%of the common shares of Organic Inc. (OI). At the time of acquisition, the carrying value of OI’s common shares was $200,000, and its retained earnings were $300,000. The fair values of the INA approximated their carrying values except for a building whose fair value was $100,000 higher than its carrying value. The building has a 20-year remaining useful life, and straight-line depreciation is used.

   On the acquisition date (January 1, 20X6), SI sold equipment to OI. OI paid cash of $260,000 for the equipment. The equipment had a book value of $200,000 at the time of sale. The remaining useful life of the equipment is estimated to be five years; the estimated residual value is $0. Both companies depreciate equipment on a straight-line basis and have a December 31 year end. They both pay income tax at a rate of 20%.

   OI reported net income of $80,000 in 20X6, and declared and paid dividends of $20,000 on its common shares.

   What amount would be reported in SI’s investment in OI account at December 31, 20X6, assuming that the equity method is used?

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Answer rating: 100% (QA)

Correct option is Letter B 302100 Explanation The problem is all about Investment in Associate under Equity Method In order to determine the answer th... View the full answer