On January 1, 2019, Above Co. purchased a 30% interest in Below Co. An acquisition differential of
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Question:
On January 1, 2019, Above Co. purchased a 30% interest in Below Co. An acquisition differential of $50,000 was identified and allocated to equipment, which had an estimated remaining useful life of 10 years. During 2019, Below Co. sold merchandise it had purchased for $60,000 to Above Co. for $100,000. At the end of 2019, Above Co. held 50% of this merchandise in its inventory. For 2019, Below Co. reported net income of $100,000 and paid dividends of $20,000. Both companies are subject to 40% tax rates.
If Above Co. uses the equity method to account for its investment in Below Co., how much investment income will it report in 2019?
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