Pete Purchased 100% of the Common Stock of the Sanburn $$\begin{array} { l r r } & 2016 & 2017 \\\text { Net income }& \$ 80,000 & \$ 90,000 \\\text { Dividends paid } & 10,000 & 10,000\end{array}$$

Short Answer

Pete purchased 100% of the common stock of the Sanburn Company on January 1, 2016, for $500,000.On that date, the stockholders' equity of Sanburn Company was $380,000.On the purchase date, inventory of Sanburn Company, which was sold during 2016, was understated by $20,000.Any remaining excess of cost over book value is attributable to patent with a 20-year life.The reported income and dividends paid by Sanburn Company were as follows: ?
?
$$\begin{array} { l r r } & 2016 & 2017 \\\text { Net income }& \$ 80,000 & \$ 90,000 \\\text { Dividends paid } & 10,000 & 10,000\end{array}$$
Using the cost method, which of the following amounts are correct?
?
$\begin{array}{cc}\text { Investment Income } & \text { Investment Account Balance } \\2016 & \text { December } 31,2016\end{array}$
A) $\begin{array}{lr}&&\$ 10,000 &&&&&&&& \$ 500,000 \\\end{array}$
B) $\begin{array}{lr} &&\$ 10,000 &&&&&&&& \$ 570,000 \\\end{array}$
C) $\begin{array}{lr} &&\$ 0 & &&&&&&&&&\$ 570,000 \\\end{array}$
D) $\begin{array}{lr} &&\$ 80,000 &&&&&&&& \$ 500,000\end{array}$