Question

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: Assume the equity method is applied. 8. Compute Pell's income from Demers for the year ended December 31, 2010. A. $74,400. B. $73,000. C. $42,400. D. $41,000. E. $80,000.

Answer 1

Answer:

$74,400

Explanation:

Pell Company

Pell's income from Demers for the year ended December 31, 2010

Controlling Interest Share of Net Income for 2010- Excess Fair value Annual Amortization

Controlling Interest Share of Net Income for 2010= ($100,000 × .80) $80,000

Less Excess Fair Value Annual Amortization =($7,000 × .80) $5,600

Pell Income= $74,400