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Topic
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The answer is b) $42,000
48000-4000-2000
The figures are from multiplying net income by .4 and then subtracting the excesses of the plant and inventory (2000 and 4000). Why are the dividends not subtracted as well?
Thanks!
Sage, Inc. bought 40% of Adams Corp.’s outstanding common stock on January 2, 20X3, for $400,000. The carrying amount of Adams’ net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an eighteen-year life. All inventory was sold during 20X3. During 20X3, Adams reported net income of $120,000 and paid a $20,000 cash dividend. Assume that Sage uses the equity method to account for this investment. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, 20X3?
a
$48,000
b
$42,000
c
$36,000
d
$32,000
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