Let's calculate the amount that Stream should report as income (or loss) from its investment in Q-Video for 2023 and 2024 under the equity method, step by step:
### Step 1: Calculate book value and implied value on the date of acquisition.
- Book value of Q-Video's net assets:
[tex]\[
\text{Net Assets} = \text{Assets} - \text{Liabilities} = 1,800,000 - 650,000 = 1,150,000
\][/tex]
- Stream's ownership percentage:
[tex]\[
\text{Ownership Percentage} = 25\%
\][/tex]
- Q-Video's book value on a 25% basis:
[tex]\[
\text{Book Value of Investment} = 1,150,000 \times 0.25 = 287,500
\][/tex]
- Excess of investment over book value:
[tex]\[
\text{Excess} = 788,000 - 287,500 = 500,500
\][/tex]
- Allocation of the excess:
[tex]\[
\text{Customer List Value} = 296,000
\][/tex]
[tex]\[
\text{Remaining Excess = Goodwill} = 500,500 - 296,000 = 204,500
\][/tex]
### Step 2: Calculate annual amortization for the customer list.
- Amortization for customer list:
[tex]\[
\text{Annual Amortization} = \frac{296,000}{5} = 59,200
\][/tex]
### Step 3: Calculate Stream's share of net income/loss and adjustments for 2023 and 2024:
#### For 2023:
- Stream's share of Q-Video's net income:
[tex]\[
\text{Share of Net Income} = 324,000 \times 0.25 = 81,000
\][/tex]
- Less: Dividends received:
[tex]\[
\text{Dividends} = 10,000 \times 0.25 = 2,500
\][/tex]
- Less: Amortization of customer list:
[tex]\[
\text{Amortization} = 59,200
\][/tex]
- Unearned profit from inventory sale (remaining inventory):
[tex]\[
\text{Unearned Profit (2023)} = 82,000 \times 0.25 = 20,500
\][/tex]
- Equity income for 2023:
[tex]\[
\text{Equity Income} = 81,000 - 2,500 - 59,200 - 20,500 = -1,200
\][/tex]
#### For 2024:
- Stream's share of Q-Video's net loss:
[tex]\[
\text{Share of Net Loss} = -104,000 \times 0.25 = -26,000
\][/tex]
- Less: Dividends received:
[tex]\[
\text{Dividends} = 10,000 \times 0.25 = 2,500
\][/tex]
- Less: Amortization of customer list:
[tex]\[
\text{Amortization} = 59,200
\][/tex]
- Unearned profit adjustments:
- For remaining 2023 inventory:
[tex]\[
\text{2023 Remaining Inventory} = 82,000 \times 0.25 = 20,500
\][/tex]
- For 2024 inventory:
[tex]\[
\text{2024 Unearned Profit} = (176,000 - 132,000) \times 0.25 = 11,000
\][/tex]
- Equity loss for 2024:
[tex]\[
\text{Equity Loss} = -26,000 - 2,500 - 59,200 - 11,000 - 20,500 = -119,200
\][/tex]
### Conclusion:
After deducting the appropriate shares of dividends, amortization, and unearned profit, we find:
- Equity income for 2023: [tex]\(-1,200\)[/tex]
- Equity loss for 2024: [tex]\(-74,200.5\)[/tex]
Therefore, the amounts that Stream should report as income (or loss) from its investment in Q-Video under the equity method are:
- For 2023: Equity loss of [tex]\(-1,200\)[/tex]
- For 2024: Equity loss of [tex]\(-74,200.5\)[/tex]
