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 31

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 sophisticated (full) 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) $\begin{array}{ll}&& \$ 55,000 &&&&&&& \$ 555,000 \\\end{array}$
B) $\begin{array}{ll}&&\$ 55,000 &&&&&&& \$ 545,000 \\\end{array}$
C) $\begin{array}{ll}&&\$ 75,000 &&&&&&& \$ 565,000 \\\end{array}$
D) $\begin{array}{ll} &&\$ 80,000 &&&&&&& \$ 570,000\end{array}$

• A)\(\begin{array}{ll}&& \$ 55,000 &&&&&&& \$ 555,000 \\\end{array}\)
• B)\(\begin{array}{ll}&&\$ 55,000 &&&&&&& \$ 545,000 \\\end{array}\)
• C)\(\begin{array}{ll}&&\$ 75,000 &&&&&&& \$ 565,000 \\\end{array}\)
• D)\(\begin{array}{ll} &&\$ 80,000 &&&&&&& \$ 570,000
• \end{array}\)

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Definitions:

Industry Canada

A department of the Canadian government responsible for national economic development, innovation, and technology.

Knowledge-Based Economy

An economy where growth is primarily driven by the production, distribution, and use of knowledge and information.

Competition Bureau

A government agency responsible for enforcing antitrust or competition laws to prevent monopolistic practices and maintain fair competition in the market.

Sale of Goods Act

Legislation that governs the sale of goods, defining obligations, rights, and warranties between buyers and sellers.