_____ On 4/1/06, Patz acquired 90% of Satz's outstanding common stock for $500,000 cash. For 2006, Satz reported $30,000 of net income each quarter and declared dividends of $10,000 each quarter. Also for 2006, Patz recorded $10,000 of amortization of cost in excess of book value in its general ledger.
What amount appears in Patz's 2006 income statement if it accounts for its investment in Satz under the equity method?

Question

Quizplus · Accepted Answer

Under the equity method, Patz would recognize its share of Satz's net income and subtract any amortization of excess cost. Patz's share of Satz's net income is 90% of $120,000 (total annual net income), which is $108,000. Subtracting the $10,000 amortization gives $98,000. However, the question asks for the amount in Patz's income statement, which includes only the share of net income minus amortization, not dividends. Therefore, the correct amount is $71,000 ($108,000 - $10,000 - $27,000 dividends).

_____ on 4/1/06, Patz Acquired 90% of Satz's Outstanding Common