Reference no: EM132642034

Question - On January 1, 2019, Spider Corp. acquired a 40% interest in Carpet Inc. for $250,000 cash. On that date, Carpet's balance sheet reported net assets with a book value of $540,000. Any excess of cost over fair value was attributable to an unrecorded customer list with a 5-year remaining life. During 2019, Carpet bought inventory for $24,000 and sold it to Spider for $30,000. Spider still had 40% of that inventory on hand at the end of the year. For the year ended December 31, 2019, Carpet reported net income of $100,000 and paid cash dividends of $30,000. Since this 40% investment does give Spider the ability to exercise significant influence over Carpet, Spider appropriately uses the equity method.

Required -

A. Compute the Spider's investment income (Equity Earnings in Carpet) for the year ending December 31, 2019?

B. Compute the December 31, 2019 balance in Spider's account, Investment in Carpet.