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On January 1, 2017, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This...

On January 1, 2017, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2017, Sacco reported net income of $50,000 and paid dividends of $20,000 while in 2018 it reported net income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco.

1. The equity in income of Sacco for 2018, is:

2. The balance in the Investment in Sacco account at December 31, 2017, is:

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Answer #1

Amount paid ==> 100,000

Add: Equity income for 2017 ==>13,500

Less: share of saccos 2017 dividends reducing the invest ment value ==> 2000*30%

==>-6000

then

The balance in the Investment in Sacco account at December 31, 2017 is

==>107500

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