Question

A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the date of acquisition was $2,000. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition:

	Fair Value – Book Value
Inventories	$ (200)	FIFO, sold in 2019
Identifiable intangibles	5,000	Straight-line, 5 years
Long-term debt	300	Straight-line, 2 years

Goodwill recognized in the acquisition was unimpaired in 2019 but became fully impaired during 2020. The subsidiary did not declare any dividends during this period and reported no other comprehensive income. The subsidiary reported net income as follows:

Year	Net Income
2019	$1,500
2020	5,000
2021	2,000

The parent uses the complete equity method to report its investment on its own books.

Equity in net income for 2019, reported on the parent's books, is:

	A.	$1,500
	B.	$ 850
	C.	$ 150
	D.	$1,050

Answer 1

Subsidiary books acquired for $. 10000.but its book value is $. 2000 which is lower than valuation amount.Identifiable Intangible asset which is partly impaires in the year 2019.Inventories shows the negative amount of $. 200.since the given Income earned during the year is $. 1500 and also no other Income for the company and did not declare dividend during the year. Same as to be treated as Income of subsidiary company in the books of parents company. Hence, equity Income is $. 1500