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

question 110

Multiple Choice

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: $\begin{array}{lrrr}&2014&2015&2016\\\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \\\text { Dividends } & 40,000 & 50,000 & 60,000\end{array}$ Assume the PARTIAL EQUITY method is applied.
How much does Pell record as income from Demers for the year ended December 31, 2015?

• A)$90,400.
• B)$89,000.
• C)$50,400.
• D)$96,000.
• E)$56,000.

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Definitions:

Detailed Estimates

Comprehensive predictions of the expected costs, resources, or time needed to complete a project component or task.

Slower

Moving or operating at a reduced speed or pace compared to normal or expected.

Detailed Cost Estimates

Detailed cost estimates refer to the comprehensive evaluation of all anticipated costs involved in completing a project, task, or product development.

Actual Cost

The true, total expense incurred for a project, activity, or item.