Perla Company acquires 40% of the voting stock of Stanton Corporation for $8,000,000 on January 1, 2016. At the time, the book value of Stanton was $20,000,000. During 2016, Stanton reported net income of $2,500,000 and paid dividends of $600,000. Both companies have December 31 year-ends, and there is no impairment of the investment.
Now assume Stanton’s book value at the date of acquisition was $15,000,000, and the excess paid over book value is attributed to previously unrecorded intangibles with an estimated remaining life of 10 years. Straight-line amortization is appropriate.
What amount does Perla report as equity in net income of Stanton for 2016?