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Bell Company purchases 80% of Demers Company for $500,000 on January 1, 2006. Demers reported common stock of $300,000 and retained earnings of $200,000 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 cost 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: 2006 2007 2008
Net income $100,000 $120,000 $130,000
Dividends 40,000 50,000 60,000

Assume the equity method is applied. Compute Bell's income from Demers for the year ended December 31, 2008.

a) $50,400

b) $56,000

c) $98,400

d) $124,400

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Accounting Basics, Accounting

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