Pell Company acquires 80% of Demers Company for $500,000 on - 12487

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  • Posted on: Mon 16 Jul, 2012
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Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.

Demers earns income and pays dividends as follows:


                       2010           2011               2012


Net income  $100,000   $120,000      $130,000


Dividends      $40,000     50,000         60,000

Assume the equity method is applied.

Compute Pell's investment in Demers at December 31, 2012. Show your work, i.e. what numbers were added, subtracted, multiplied or divided.

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Pell Company ac...