On January 1, 2017, Portland Company acquired all of Salem Company’s voting stock for $16,000,000 in cash. Some of Salem’s assets and liabilities at the date of purchase had fair values that differed from reported values, as follows:

	Book value	Fair value
Buildings and equipment, net (20 years, straight-line)	$11,000,000	$ 3,000,000
Identifiable intangibles (5 years, straight-line)	0	10,000,000

Salem’s total shareholders’ equity at January 1, 2017, was $4,000,000. It is now December 31, 2020 (four years later). Salem’s retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of 2020 is $2,000,000. Goodwill impairment for 2020 is $500,000. Portland uses the complete equity method to account for its investment. The December 31, 2020, trial balance for Salem appears below.

	Salem Dr (Cr)
Current assets	$2,500,000
Plant assets, net	28,000,000
Liabilities	(10,000,000)
Capital stock	(2,000,000)
Retained earnings, January 1	(16,000,000)
Sales revenue	(14,000,000)
Cost of goods sold	8,000,000
Operating expenses	3,500,000
	$ 0

What is 2020 equity in net income of Salem, reported on Portland’s books using the complete equity method?

A. $ 400,000

B. $ 900,000

C. $1,200,000

D. $2,500,000

Answer rating: 100% (QA)

solution finding equity in net income of Salem reported on Portlands books using the complete equity ... View the full answer