On January 1, 2010, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2010, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco.
-The balance in the investment in Sacco account at December 31, 2010, is

Question

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Dawson's share of Sacco's income for 2010 is 30% of $50,000, which is $15,000. The amortization of the patent premium is ($40,000 - $10,000) / 6 years = $5,000 per year, and Dawson's share is 30% of $5,000, which is $1,500. The dividends received are 30% of $20,000, which is $6,000. The investment account is adjusted as follows: $100,000 + $15,000 - $1,500 - $6,000 = $107,500.

On January 1, 2010, Dawson, Incorporated, Paid $100,000 for a 30