Question
On January 1, 2013, Pailor Inc. purchased 40% of the outstanding stock of Saska Company for $300,000. At that time, Saska's stockholders' equity consisted of
On January 1, 2013, Pailor Inc. purchased 40% of the outstanding stock of Saska Company for $300,000. At that time, Saska's stockholders' equity consisted of $270,000 common stock and $330,000 of retained earnings. Saska Corporation reported net income of $360,000 for 2013. The allocation of the $60,000 excess of cost over book value acquired is shown below, along with information relating to the useful lives of the items:
Overvalued receivables (collected in 2013) $(5,000)
Undervalued inventories (sold in 2013) 16,000
Undervalued building (4 years' useful life remaining at January 1, 2013) 24,000
Undervalued land 8,000
Unrecorded patent (6 years' economic life remaining at January 1, 2013) 18,000
Undervalued accounts payable (paid in 2013) (4,000)
Total of excess allocated to identifiable assets and liabilities 57,000
Goodwill 3,000
Excess cost over book value acquired $60,000
Determine Pailor's investment income from Saska for 2013.
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