Question

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: Assume the EQUITY METHOD is applied. Compute Pell's investment account balance in Demers at December 31, 2016.

Answer 1

The correct option is $660,000

Step-by-step explanation:

Investment Balance as on December 2015 $604,000

Add: Controlling Interest Income for 2016 ($130,000 × .80) 104,000

Less: Dividends for 2015 ($60,000 × .80) (48,000)

$660,000