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Question - 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, 2021.
a. $50,400.
b. $56,000.
c. $98,400.
d. $97,000.
e. $104,000.
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