Question
On January 1, 2019, Spider Corp. acquired a 40% interest in Carpet Inc. for $250,000 cash. On that date, Carpet's balance sheet reported net assets
On January 1, 2019, Spider Corp. acquired a 40% interest in Carpet Inc. for $250,000 cash. On that date, Carpet's balance sheet reported net assets with a book value of $540,000.Any excess of cost over fair value was attributable to an unrecorded customer list with a 5-year remaining life. During 2019, Carpet bought inventory for $24,000 and sold it to Spider for $30,000.Spider still had 40% of that inventory on hand at the end of the year.For the year ended December 31, 2019, Carpet reported net income of $100,000 and paid cash dividends of $30,000.Since this 40% investment does give Spider the ability to exercise significant influence over Carpet, Spider appropriately uses the equity method.
Required:
Compute the following.
A.Spider's investment income (Equity Earnings in Carpet) for the year ending December 31, 2019
B.The December 31, 2019 balance in Spider's account, Investment in Carpet.
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