Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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.
Compute Pell's investment account balance in Demers at December 31, 2015.

Question

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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.
Compute Pell's investment account balance in Demers at December 31, 2015.

Quizplus · Accepted Answer

December 2014 Investment Balance $542,400 + Controlling Interest Income for 2015 ($120,000 × .80) - Dividends for 2015 ($50,000 × .80) - Excess FV Annual Amortization ($7,000 × .80) = $592,800

Pell Company Acquires 80% of Demers Company for $500,000 on January