Pinta Company purchased 40% of Snuggie Corporation on January 1, 2017 for $150,000. Snuggie Corporation's balance sheet at the time of acquisition was as follows:

    Cash

 $30,000

 Current Liabilities

 $40,000

   Accounts Receivable

 120,000

 Bonds Payable

 200,000

   Inventory

  80,000

 Common Stock

 200,000

   Land

 150,000

 Additional Paid in Capital

  40,000

   Buildings & Equipment

 300,000

 Retained Earnings

  80,000

   Less: Acc. Depreciation

 (120,000)

    Total Assets

     $560,000

 

 Total Liabilities and Equities

     $560,000

   

During 2017, Snuggie Corporation reported net income of $30,000 and paid dividends of $9,000. The fair values of Snuggie's assets and liabilities were equal to their book values at the date of acquisition, with the exception of Building and Equipment, which had a fair value of $35,000 above book value. All buildings and equipment had a remaining useful life of five years at the time of the acquisition. The amount attributed to goodwill as a result of the acquisition is not impaired. 

 

Required:

 

A. What amount of investment income will Pinta record during 2017 under the equity method of accounting?

 

B. What amount of income will Pinta record during 2017 under the cost method of accounting?

 

C. What will be the balance in the investment account on December 31, 2017 under the cost and equity method of accounting?

Answer rating: 100% (QA)

A Equity Method of Accounting Pinta Companys investment in Snuggie Corporation is 40 so it will reco... View the full answer