Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2019 2020 2021 Net income $ 100,000 $ 120,000 $ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. Compute Pell's equity income from Demers for the year ended December 31, 2020.
Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2019 2020 2021 Net income $ 100,000 $ 120,000 $ 130,000 Dividends 40,000 50,000 60,000 Assume the equity method is applied. Compute Pell's equity income from Demers for the year ended December 31, 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and
Demers earns income and pays dividends as follows:
| 2019 | 2020 | 2021 | |||||||||
| Net income | $ | 100,000 | $ | 120,000 | $ | 130,000 | |||||
| Dividends | 40,000 | 50,000 | 60,000 | ||||||||
Assume the equity method is applied.
Compute Pell's equity income from Demers for the year ended December 31, 2020.
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