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Pesto Company paid $164,000 to acquire 40 percent ownership of Sauce Company on January 1, 20X2. Net book value of Sauce's assets on that date
Pesto Company paid $164,000 to acquire 40 percent ownership of Sauce Company on January 1, 20X2. Net book value of Sauce's assets on that date was $300,000. Book values and fair values of net assets held by Sauce were the same except for equipment and patents. Equipment held by Sauce had a book value of $70,000 and fair value of $120,000 All of the remaining purchase price was attributable to the increased value of patents with a remaining useful life of eight years. The remaining economic life of all depreciable assets held by Sauce was five years Sauce Company's net income and dividends for the three years immediately following the purchase of shares were Year 20X2 20X3 20X4 Dividends $15,000 20,000 25,000 Net Income $40,000 60,000 70,000 The computation of Pesto's investment income for 20X4 and entries in its investment account since the date of purchase were as follows 20X4 Investment Income pro rata income accrual ($70,000 0.40) Amortize patents ($44,000 8 years) Dividends received ($25,000 x 0.40) 20x4 investment income $28,000 10,000 $32,500 $5,500 Investment in Sauce
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