On January 1, 2012, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $770,000. Q-Video manufactures specialty cables for computer monitors.
On that date, Q-Video reported assets and liabilities with book values of $1.9 million and $700,000, respectively. A customer list compiled by Q-Video had an appraised value of $300,000, although it was not recorded on its books. The expected remaining life of the customer list was five years with a straight-line depreciation deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered goodwill.
Q-Video generated net income of $250,000 in 2012 and a net loss of $100,000 in 2013. In each of these two years, Q-Video paid a cash dividend of $15,000 to its stockholders.
During 2012, Q-Video sold inventory that had an original cost of $100,000 to Stream for $160,000. Of this balance, $80,000 was resold to outsiders during 2012, and the remainder was sold during 2013. In 2013, Q-Video sold inventory to Stream for $175,000. This inventory had cost only $140,000. Stream resold $100,000 of the inventory during 2013 and the rest during 2014.
For 2012 and then for 2013, compute the amount that Stream should report as income from its investment in Q-Video in its external financial statements under the equity method.