Reference no: EM132743302
Question: Posada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2016, for $840,000. The subsidiary's total fair value was assessed at $1,200,000 although its book value on that date was $1,130,000. The $70,000 fair value in excess of Sabathia's book value was assigned to a patent with a five-year remaining life.
On January 1, 2018, Posada reported a $1,085,000 equity method balance in the Investment in Sabathia Company account. On October 1, 2018, Posada sells 1,000 shares of the investment for $191,000. During 2018, Sabathia reported net income of $120,000 and declared dividends of $40,000. These amounts are assumed to have occurred evenly throughout the year.
- How should Posada report the 2018 income that accrued to the 1,000 shares prior to their sale? (Do not round your intermediate calculations.)
- What is the effect on Posada's financial statements from this sale of 1,000 shares? (Do not round your intermediate calculations.)