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On January 1, Year 1, Test Company purchased 300,000 shares of A Company common stock for $20 per share. The investment represents a 25% ownership
On January 1, Year 1, Test Company purchased 300,000 shares of A Company common stock for $20 per share. The investment represents a 25% ownership interest and gives Test Company the ability to significantly influence the investee. On the date of acquisition, the fair value of A Company's net assets exceeded the book value by $400,000. The amount is attributable to buildings with a remaining useful life of 20 years. During both Year 1 and Year 2, A Company paid dividends of $0.25 per share. A Company reported net income of $1,000,000 for the year ended December 31, Year 1 and $1,200,000 for the year ended December 31 Year 2 . The fair value of A Company's common stock was $21 per share on December 31, Year 1 and $22 per share on December 31, Year 2. Assume that Tests Company held no other investments during Year 1 or Year 2. Determine the amount that pretax income would increase (decrease) in Year 2 as a result of the investment. Give your answer using dollar signs and commas but not decimals (cents). Example: $12,345 or $(12,345)
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