Question

On January 1, 2017, Stream Company acquired 27 percent of the outstanding voting shares of Q-Video, Inc., for $648,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of $1.4 million and $708,000, respectively. A customer list compiled by Q-Video had an appraised value of $318,000, although it was not recorded on its books. The expected remaining life of the customer list was five years with a straight-line amortization deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered goodwill. Q-Video generated net income of $392,000 in 2017 and a net loss of $100,000 in 2018. In each of these two years, Q-Video declared and paid a cash dividend of $12,000 to its stockholders. During 2017, Q-Video sold inventory that had an original cost of $81,600 to Stream for $170,000. Of this balance, $84,000 was resold to outsiders during 2017, and the remainder was sold during 2018. In 2018, Q-Video sold inventory to Stream for $170,000. This inventory had cost only $136,000. Stream resold $104,000 of the inventory during 2018 and the rest during 2019. For 2017 and then for 2018, compute the amount that Stream should report as income from its investment in Q-Video in its external financial statements under the equity method. (Enter your answers in whole dollars and not in millions. Do not round intermediate calculations.)

Answer 1

Answer-

Particular	2017	2018
Cost of goods sold	81,600	136,000
Sales	170,000	170,000
Gross Profit	88,400	34,000
Gross Profit Percent	52%	20%
Inventory Remaining	84,000	66,000
Unrealized gross profit in ending inventory	43,680	13,200
Parent's share @ 27%	11,794	3,564

	2017	2018
Basic equity accrual 2017	105,840	(27,000)
	(27%* $392,000)	(27% *$100,000)
Amortization of customer list
Intangible-2017 ($318,000/5 *27%)	(17,172)	(17,172)
Add: Unrealized profit of 2017	0	11,797
Eliminate the deferred gross profit from upstream sales	(11,797)	(3,564)
Equity in 2017/2018 earning of Q-video	76,871	(35,939)