Pal Corporation

Pal Corporation purchased for cash 6,000 shares of voting common stock of Sap Corporation at $16 per share on July 1, 2011. On this date, Sap’s equity consisted of $100,000 of $10 par capital stock, $20,000 retained earnings from prior periods, and $10,000 current earnings (for one-half of 2011). Sap’s income for 2011 was $20,000, and it paid dividends of $12,000 on November 1, 2011. All of Sap’s assets and liabilities had book values equal to fair values at July 1, 2011, and any differences between investment cost and book value acquired should be assigned to equipment and amortized over a 10- year period.
REQUIRED: Compute the correct amounts for each of the following items using the equity method of accounting for Pal’s investment:
1. Pal’s income from its investment in Sap for the year ended December 31, 2011.
2. The balance of Pal’s Investment in Sap account at December 31, 2011.
(Note: Assumptions on page 46 are needed for this problem.)

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