Barnes purchased a 30% interest in Rhodes on Jan 1, Year 1 for $330,000 and the property uses the equity method of accounting. The carrying value of Rhodes's net assets at the purchase date was $1,000,000. Fair values equaled carrying amounts for all items except equipment, where fair value exceeded the carrying amount by $100,000. The equipment had a remaining useful life of 5 years on Jan 1, Year 1. Rhodes reports an income of $150,000 for the year.

Barnes received a 10% stock dividend from Rhodes on Feb 1, Year 2. Rhodes also paid a cash dividend of $8,000 to his shareholders on May 31, Year 2. Barnes paid a dividend of $30,000 to its shareholders on Oct 30, Year 2. Earnings for the year for Barnes and Rhodes were $125,000 and $50,000, respectively.