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On January 1, 2017, Chair Company acquired a 20% interest in Jamie Company for $800,000 and used the equity method to account for its
On January 1, 2017, Chair Company acquired a 20% interest in Jamie Company for $800,000 and used the equity method to account for its investment. The book value of Jamie's net assets on that date was $3,500,000. An analysis of fair values revealed that all fair values of assets and liabilities were equal to book values except for a building. The building was undervalued by $60,000 and has a 20-year remaining life. The company used straight-line depreciation for the building. Jamie paid 2,800 in dividends in 2017. During 2017, Jamie reported net income of $23,000. During the year, Jamie sold inventory to Chair. At the end of the year, there was $7,000 profit from the upstream sale in Jamie's net income. The inventory sold to Chair by Jamie had not been sold to an outside party. Calculate the equity income to be reported as a line item on Chair's 2017 income statement. a) $4,600 b) $2,600 c) $3,200
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