On January 1, 2022, Above Co. purchased a 30% interest in Below Co. An acquisition differential of $50,000 was identified and allocated to equipment, which had an estimated remaining useful life of 10 years. During 2022, Below Co. sold merchandise it had purchased for $60,000 to Above Co. for $100,000. At the end of 2022, Above Co. held 50% of this merchandise in its inventory. For 2022, Below Co. reported net income of $100,000 and paid dividends of $20,000. Both companies are subject to 40% tax rates.
If Above Co. uses the equity method to account for its investment in Below Co., how much investment income will it report in 2022?
Multiple Choice
o $13,000
o $17,000
o $21,400 - Need explanation for this answer. Thanks.
o $22,600
