#3

Pencil Company purchased 40 percent ownership of Stylus Corporation on January 1,201, for $161,000. Stylus's balance sheet at the time of acquisition was as follows: During 20X1, stylus Corporation reported net Income of $27,000 and paid dividends of $7,000. The fair values of Stylus's assets and llabilities were equal to their book values at the date of acquisition, with the exception of bulldings and equipment, which had a fair value $35,000 above book value. All bulldings and equipment had remaining IIves of five years at the time of the business combination. The amount attributed to goodwill as a result of its purchase of Stylus shares is not impaired. Required: a. What amount of Investment Income will Pencil Company record during 201 under equity-method accounting? b. What amount of Income will be reported under the cost method? c. What will be the balance in the Investment account on December 31,201