On January 1, 2020, Graham Co. acquired 40% of the outstanding voting common shares of Lenore Co. for $700,000. On that date, Lenore reported assets and liabilities with book values of $2,200,000 and $700,000, respectively. A building owned by Lenore had an appraised value of $300,000 although it had a book value of only $120,000. This building had a 10-year remaining life and no salvage value. It was being depreciated on the straight-line basis. Lenore generated net income of $400,000 in 2020 and paid a cash dividend of $90,000 to its stockholders. During 2018, Lenore sold inventory to Graham that had an original cost of $60,000. The merchandise was sold to Graham for $96,000. Of this balance, $65,000 was resold to outsiders during 2020. Required: Calculate the equity income to be reported by Graham for 2020.

In the given case the company has only acquired 40% stake in the company it will be accounted as an…

Answered: On January 1, 2020, Graham Co. acquired…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 8MC

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On January 1, 2020, Graham Co. acquired 40% of the outstanding voting common shares of Lenore Co. for $700,000. On that date, Lenore reported assets and liabilities with book values of $2,200,000 and $700,000, respectively. A building owned by Lenore had an appraised value of $300,000 although it had a book value of only $120,000. This building had a 10-year remaining life and no salvage value. It was being depreciated on the straight-line basis.

Lenore generated net income of $400,000 in 2020 and paid a cash dividend of $90,000 to its stockholders.

During 2018, Lenore sold inventory to Graham that had an original cost of $60,000. The merchandise was sold to Graham for $96,000. Of this balance, $65,000 was resold to outsiders during 2020.

Required:

Calculate the equity income to be reported by Graham for 2020.

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