Question
Puff Co. acquired 40% of Straw, Inc's voting common stock on January 2, Year 1, for $400,000. 40% voting interest gives Puff Co. significant
Puff Co. acquired 40% of Straw, Inc's voting common stock on January 2, Year 1, for $400,000. 40% voting interest gives Puff Co. significant influence over the operating and financial policies of Straw, Inc. The carrying amount of Straw's net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by $100.000. The equipment has a five-year life. During Year 1, Straw reported net income of $150,000. What amount of income from this investment should Puff report in its Year 1 income statement if Puff uses the equity method to account for the investment? $60,000 $52,000 $56,000 $40,000
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