Reference no: EM132951838
Question - On January 1, 20X6, Synthetic Inc. (SI) paid $300,000 cash to acquire 30% of the common shares of Organic Inc. (OI). At the time of acquisition, the carrying value of OI's common shares was $200,000, and its retained earnings were $300,000. The fair values of the INA approximated their carrying values except for a building whose fair value was $100,000 higher than its carrying value. The building has a 20-year remaining useful life, and straight-line depreciation is used.
On the acquisition date (January 1, 20X6), SI sold equipment to OI. OI paid cash of $260,000 for the equipment. The equipment had a book value of $200,000 at the time of sale. The remaining useful life of the equipment is estimated to be five years; the estimated residual value is $0. Both companies depreciate equipment on a straight-line basis and have a December 31 year-end. They both pay income tax at a rate of 20%.
Of reported a net income of $80,000 in 20X6 and declared and paid dividends of $20,000 on its common shares.
What amount would be reported in SI's investment in the OI account on December 31, 20X6, assuming that the equity method is used?
a) $278,100
b) $302,100
c) $304,980
d) $310,980
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