Reference no: EM132868254

Question - On January 1, 2018, Paris Company (Paris) acquired a 70% interest in Strasbourg Limited (Strasbourg) for $490,000 and used the equity method to record the investment. On the date of acquisition, Strasbourg had ordinary shares of $100,000 and its retained earnings totaled $550,000; the patent had a carrying value that was understated by $39,600. On the date of acquisition, the patent had a useful of 11 years.

On January 1, 2020, Paris sold land and building to Strasbourg for total proceeds of $750,000. The proceeds were allocated $180,000 to the land and $570,000 to the building. The land and building were acquired by Paris in 2018 for $120,000 and $400,000, respectively. On the date of sale, the building had a net book value of $360,000 and a remaining useful life of 15 years.

In 2021, the goodwill impairment test resulted in a loss of $8,000.

In 2021, Strasbourg had net income of $420,000 and declared dividends of $220,000.

Both companies use a tax rate of 30 percent.

REQUIRED - Calculate the 2021 investment income (equity method income) for Paris's investment in Strasbourg.