Pearl Corporation paid $150,000 on January 1, 2020 for a 25% interest in Sandlin Inc. On January 1,2020, the book value of Sandlin's stockholders' equity consisted of $200,000 of common stock and$200,000 of retained earnings. All the excess purchase cost over book value acquired was attributable toa patent with an estimated life of 5 years. During 2020 and 2021, Sandlin paid $3,000 of dividends eachquarter and reported net income of $60,000 for 2020 and $80,000 for 2021. Pearl used the equity method.Required:1.2.3.Calculate Pearl's income from Sandlin for 2020.Calculate Pearl's income from Sandlin for 2021.Determine the balance of Pearl's Investment in Sandlin account on December 31, 2021.

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Answered: Calculate Pearl's income from Sandlin…

Calculate Pearl's income from Sandlin for 2020. Calculate Pearl's income from Sandlin for 2021. Determine the balance of Pearl's Investment in Sandlin account on December 31, 2021.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Pearl Corporation paid $150,000 on January 1, 2020 for a 25% interest in Sandlin Inc. On January 1,
2020, the book value of Sandlin's stockholders' equity consisted of $200,000 of common stock and
$200,000 of retained earnings. All the excess purchase cost over book value acquired was attributable to
a patent with an estimated life of 5 years. During 2020 and 2021, Sandlin paid $3,000 of dividends each
quarter and reported net income of $60,000 for 2020 and $80,000 for 2021. Pearl used the equity method.
Required:
1.
2.
3.
Calculate Pearl's income from Sandlin for 2020.
Calculate Pearl's income from Sandlin for 2021.
Determine the balance of Pearl's Investment in Sandlin account on December 31, 2021.

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Step 4: 3. Computation of balance of Pearls Investment in Sandlin's account on December 31, 2021

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