Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for 500,000. On that date, the stockholders’ equity of Sanburn…

Pedro purchased 100% of the common  of the Sanburn Company on January 1, 20X1, 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 20X1, 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:

20X1

Net Income 80,000

Dividends paid 10,000

20X2

Net Income 90,000

Dividends paid 10,000

Using the sophisticated (full) equity method, which of the following amounts are correct?

A. 20X1 Investment Income: 55,000, 12/31 20X1 Investment Account Balance: 555,000

B. 20X1 Investment Income: 55,000, 12/31 20X1 Investment Account Balance: 545,000

C. 20X1 Investment Income: 75,000, 12/31 20X1 Investment Account Balance: 565,000

D. 20X1 Investment Income: 80,000, 12/31 20X1 Investment Account Balance: 570,000