On January 1, 2017, Perch Company purchased an 80% interest in the capital stock of Salmon Company for $3,400,000.At that time, Salmon Company had common stock of $2,200,000 and retained earnings of $620,000.Perch Company uses the cost method to record its investment in Salmon Company.Differences between the fair value and the book value of the identifiable assets of Salmon Company were as follows:
Fair Value in Excess of Book Value
The book values of all other assets and liabilities of Salmon Company were equal to their fair values on January 1, 2017.The equipment had a remaining life of five years on January 1, 2017; the inventory was sold in 2017.
Salmon Company’s net income and dividends declared in 2017 were as follows:
Year 2017 Net Income of $400,000; Dividends Declared of $100,000