Reference no: EM132980662
Question: Pinta Company purchased 40% of Snuggie Corporation on January 1, 2017 for $150,000. Snuggie Corporation's balance sheet at the time of acquisition was as follows:
Cash $30,000
Current Liabilities $40,000
Accounts Receivable 120,000
Bonds Payable 200,000
Inventory 80,000
Common Stock 200,000
Land 150,000
Additional Paid in Capital 40,000
Buildings & Equipment 300,000
Retained Earnings 80,000
Less: Acc. Depreciation (120,000)
Total Assets $560,000
Total Liabilities and Equities $560,000
During 2017, Snuggie Corporation reported net income of $30,000 and paid dividends of $9,000. The fair values of Snuggie's assets and liabilities were equal to their book values at the date of acquisition, with the exception of Building and Equipment, which had a fair value of $35,000 above book value. All buildings and equipment had a remaining useful life of five years at the time of the acquisition. The amount attributed to goodwill as a result of the acquisition is not impaired.
Required:
A. What amount of investment income will Pinta record during 2017 under the equity method of accounting?
B. What amount of income will Pinta record during 2017 under the cost method of accounting?
C. What will be the balance in the investment account on December 31, 2017 under the cost and equity method of accounting?
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