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:

Quiet Enjoyment

A tenant's right to occupy and use property without interference from the landlord or others with superior title.

Warranty Deed

A deed that guarantees clear title to the property and the right to sell it, providing protection to the buyer against any future claims to the property.

Dodd-Frank Act

A comprehensive and complex piece of financial reform legislation passed in 2010 in the United States, aimed at preventing future financial crises by improving accountability and transparency in the financial system.

Mortgage Loans

Loans secured by real property through the creation of a mortgage note, enabling borrowers to purchase property.