Reference no: EM132613192

Question - Use the information below to answer questions

On January 1st.2019, X Company acquired 25% of the common shares of Y Company, giving it significant influence. At that time Y Company's financial statements included common shares of $250,000 and retained earnings of $1,350,000, and the goodwill associated with the share acquisition was $150,000. There was no difference between the book value and fair value of Y's identifiable assets and liabilities.

1. During 2019, Y had net income of $100,000 and paid dividends of $40,000. An evaluation of goodwill at the end of 2019 indicated no goodwill impairment since the date of acquisition. X's investment in shares of Y would have which of the following account balances at December 31, 2019?

a. $40,000

b. $50,000

c. $565,000

d. $610,000.

2. During 2020, Y had net income of $200,000 and paid dividends of $60,000. An asset valuation test at the end of 2020 indicated that Y's goodwill had become impaired by 20%. Which of the following best represents X's investment income from the investment in Y for 2020?

a. $ 5,000

b. $10,000

c. $20,000

d. $35,000