Axel purchased 30% of the stock of Bexel for $ 1,000,000. At that time, the book value of Bexel was $ 1,000,000. The excess above purchase price was attributed to a patent with a remaining life of 14 years.
During 2019, Axel earned an income of $ 500,000 and paid dividends of $ 100,000. Bexel earned $ 400,000 and paid dividends of $ 80,000.
Axel and Bexel had the following inventory balances from intracompany sales:
Company Beginning Inventory. Ending Inventory. Profit
Axel 12,000 15,000 Axel charges 25% on cost
Bexel 10,000 16,000 Bexel charges 20% profit
What is equity in net income for 2019?
equity in net income = $120000
equity in net income = (earned income - amortization expense, if any)*proportion owned (if any)
in the given case fair value and book value are equal and thus there is no amortization expense.
Therefore,
Equity in net income = 400000*30% = $120000
Axel purchased 30% of the stock of Bexel for $ 1,000,000. At that time, the book...