Reference no: EM132474051

Question - On January 1, 2021, John Paul Jones Corp. purchased 30% of Sky Tech Inc. for $45 million. This acquisition gave John Paul Jones significant influence over Sky Tech. At the date of acquisition, the book value of Sky Tech's net assets was $75 million and their fair value was $90 million. The difference was attributed to the fair value of equipment exceeding book value, and the remaining useful life of this equipment was 5 years. For 2021, Sky Tech reported a net income of $75 million and declared and paid $20 million in dividends.

1. Relative to its investment in Sky Tech, the amount of investment income reported by John Paul Jones Corp. on it's year end December 31, 2021 income statement is:

A) $6 million.

B) $16.5 million.

C) $22.5 million.

D) $21.6 million.

2. The total amount that John Paul Jones Corp. would report for its investment in Sky Tech Inc. on its December 31, 2021 balance sheet is:

A) $67.5 million.

B) $61.5 million.

C) $60.6 million.

D) $66.6 million.

3. Assuming John Paul cannot exercise significant influence over Sky Tech and classifies this investment as fair value through net income, total investment income reported by John Paul Jones Corp. on its year end December 31, 2021 income statement is:

A) $6 million.

B) $21.6 million.

C) $22.5 million.

D) $5.1 million.