Problem 3:

Poem Company acquired all of the stock of Story

Company on January 1, 2019 for $1,000,000 cash.

There were no combination or stock issuance

costs.

Fair market value differed from book value for two items:

item book value fair value

Land $245,000 $285,000

Buildings $280,000 $300,000

(20-year life)

In 2019, Story Company reported income of $30,000 and paid dividends of $10,500

a. Calculate the annual amortization of any difference between

fair market value and Story's book values

b. Then, indicate how much investment income Poem Company

would recognize in 2019 under each of the following methods:

Initial Value Method

Partial Equity Method

Equity Method