Question

On January 1, 2011, Pailor Inc. purchased 40% of the outstanding stock of Saska Company for $300,000. At that time, Saska's stockholders' equity consisted of $270,000 common stock and $330,000 of retained earnings. Saska Corporation reported net income of $360,000 for 2011. The allocation of the $60,000 excess of cost over book value acquired is shown below, along with information relating to the useful lives of the items:

Overvalued receivables (collected in 2011) $(5,000)

Undervalued inventories (sold in 2011) 16,000

Undervalued building (4 years' useful life remaining at January 1, 2011) 24,000

Undervalued land 8,000

Unrecorded patent (6 years' economic life remaining at January 1, 2011) 18,000

Undervalued accounts payable (paid in 2011) (4,000)

Total of excess allocated to identifiable assets and liabilities 57,000

Goodwill 3,000

Excess cost over book value acquired $60,000

Required:

Determine Pailor's investment income from Saska for 2011.

Answer

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