Pete Purchased 100% of the Common Stock of the Sanburn $$\begin{array} { l r r } & 2016 & 2017 \\ \text { Net income }& \$ 80,000 & \$ 90,000 \\\text { Dividends paid }& 10,000 & 10,000\end{array}$$

question 4

Short Answer

Pete purchased 100% of the common stock of the Sanburn Company on January 1, 2016, for $500,000.On that date, the stockholders' equity of Sanburn Company was $380,000.On the purchase date, inventory of Sanburn Company, which was sold during 2016, was understated by $20,000.Any remaining excess of cost over book value is attributable to patent with a 20-year life.The reported income and dividends paid by Sanburn Company were as follows: ?
?
$$\begin{array} { l r r } & 2016 & 2017 \\ \text { Net income }& \$ 80,000 & \$ 90,000 \\\text { Dividends paid }& 10,000 & 10,000\end{array}$$
Using the simple equity method, which of the following amounts are correct?
?
$\begin{array}{cc}\text { Investment Income } & \text { Investment Account Balance } \\2016 & \text { December } 31,2016\end{array}$
A) $\begin{array}{ll}&& \$ 80,000 &&&&&&&& \$ 570,000 \\\end{array}$
B) $\begin{array}{ll}&& \$ 70,000 &&&&&&&& \$ 570,000 \\\end{array}$
C) $\begin{array}{ll}&& \$ 70,000 &&&&&&&& \$ 550,000 \\\end{array}$
D) $\begin{array}{ll}&&\$ 80,000 &&&&&&&& \$ 550,000\end{array}$

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Definitions:

Required Rate of Return

The minimal annual revenue percentage that stimulates individuals or companies to direct their funds into a particular security or undertaking.

Borrow

To take or receive something with the intention of returning it, often referring to money with an obligation to pay back the original amount plus interest.

Yearly Payments

Recurrent payments made over the span of a year, often associated with loans, leases, or annuities.

Future Value

The estimated amount of money an investment is expected to be worth in the future, taking into account a specific rate of growth or interest.