Question

On January 1, 2017, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $720,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of $1.8 million and $772,000, respectively. A customer list compiled by Q-Video had an appraised value of $298,000, although it was not recorded on its books. The expected remaining life of the customer list was 25 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 $370,000 in 2017 and a net loss of $116,000 in 2018. In each of these two years, Q-Video declared and paid a cash dividend of $18,000 to its stockholders. During 2017, Q-Video sold inventory that had an original cost of $100,040 to Stream for $164,000. Of this balance, $82,000 was resold to outsiders during 2017, and the remainder was sold during 2018. In 2018, Q-Video sold inventory to Stream for $180,000. This inventory had cost only $144,000. Stream resold $90,000 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 is complete but not entirely correct. 2017 2018 Equity income Equity loss of of $ 83,526 X $ 49,086

Answer 1

P20 Answers 2017 Grass piefit a sales value - cast of goods = $ 164,000 - $100,040 = $63,960 to di Girass profit = $63,960 x100 164,000 = 0.39 X100 = 3941 Remaining inventory = 164,000 - $82,000 = $82,000 unrealiaed grass profit in Erding inventory = 394 x£2,000 = $31,980 stacam.Company share = 30;1x 31,920 U =$9594. beste basic Equity accrued = 304X $370,000 . .. = $111,000

Annual amortization = 298,000 X 30%. 25 years = $3,576 2018 Gross profit = $180,000 -144,000 = $ 36,000 36,000 XLOO % of gross profit = 36 180,000 = 2011 Remaining inventory = 180,000 - $90,000 =$90,000 umcakized grocs profit in Ending inverlay = 20 4- X $ 90,00 = $18,000 Stream company share = 30/- X 18,000 = $5,400 basic Equity acerled = 30-40 X 116,000 . = $34,800

2013 2018 Particular - basic Equity accrual $111,000 $34,800) - Annual amortization +(3,576) (3,546) bunrealized profit de 2017 9594 • Elomi reeling deferved gross profit @594) (5,4002 from up stream sales in 2017/18 - equirty in serafenis Farming de a-vode. 197,820 (34,18a) - 2017 -97,830 of $370,000 2018.-> (34;182) of ($116,000)