Reference no: EM132978083

Question - IBM acquires 80% of ABC, Inc. for $40 million on January 1, 2013. At the time of acquisition, ABC has total net assets with a fair value of $25 million. For the years ending December 31, 2013, and December 31, 2014, ABC, Inc. reports net income (loss) and pays dividends as shown here:

Net Income (loss) $2,000,000

Dividends Paid $1,000,000 (2014)

Net Income (Loss) $(600,000)

Dividends Paid $800,000 (2013)

The excess of the acquisition price over the fair value of net assets acquired is assigned to goodwill. Since goodwill has an indefinite life, it is not amortized.

Compute the value of IBM's investment in ABC, Inc. as of December 31, 2014, under the equity method.