Part A

A Corp. buys a 30% interest in B Inc.for $300,000 on Jan 1, 2002.  B Inc.'s Stockholder's equity section on that date is as follows:

Common Stock 			$200,000
Retained Earnings		$600,000
Total Stockholders' equity	$800,000

Part of the excess is attributable to equipment with a 5 year remaining life and undervalued by $80,000.  Suppose B Inc. reports net income of $60,000 for 2002.  

What is (1) goodwill and (2) A's investment income for 2002?

Goodwill:

Amount paid					300,000
Attributable to net assets	30% of 800,000	240,000
Excess						 60,000

Attributable to equipment	30% of $80,000	 24,000
Goodwill					 36,000  (1)

Income:
A's 30% share of B's Income:			$18,000
Less 
Amortization of equipment excess ($24000/5)	$ 4,800
Investment income, net of amortization		$13,200  (2)


Similarly, the solution to part B is as follows:

Part B

Reported Income of B				$60,000
Less 
Gain on Sale of Truck (amortize over 4 years)	$ 4,000
Profit in A's ending inventory	40% of $30,000	$12,000
Total						$16,000
Add 
Realized part of gain on sale of truck		$ 1,000
	(1/4 of $4000) 
B Inc. adjusted income				$45,000
A's share (30%)					$13,500
Less Equipment cost amortization		$ 4,800
	(1/5 * 30% * 80,000)

Complete the answer for 2002.