Question
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for 500,000. On that date, the stockholders' equity of Sanburn
Pedro purchased 100% of the commonstockof the Sanburn Company on January 1, 20X1, for 500,000. On that date, the stockholders' equity of Sanburn Company was 380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by 20,000. Any remaining excess of cost over book value is attributable to patent with a 20 year life. The reported income and dividends paid by Sanburn Company were as follows:
20X1
Net Income 80,000
Dividends paid 10,000
20X2
Net Income 90,000
Dividends paid 10,000
Using the sophisticated (full) equity method, which of the following amounts are correct?
A. 20X1 Investment Income: 55,000, 12/31 20X1 Investment Account Balance: 555,000
B. 20X1 Investment Income: 55,000, 12/31 20X1 Investment Account Balance: 545,000
C. 20X1 Investment Income: 75,000, 12/31 20X1 Investment Account Balance: 565,000
D. 20X1 Investment Income: 80,000, 12/31 20X1 Investment Account Balance: 570,000
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