Question

On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years.

The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows:
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What is consolidated net income for the third year of operations if the parent company uses the partial equity method?

Question 14 options:

	$109,800
	$112,000
	$115,000
	$117,500
	$113,500

Answer 1

Under the partial equity method , no adjustment would be required in the investment amount at the time of investment
and the same will be recorded at the original cost
Only the dividend amount received from the investment would reduce the investment amount
In this case, third year of operation
The profit would be net off of revene and expeses for both the company
Packawya	75000
Shaw profit	42500
	117500