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On January 1, 2017, Stream Company acquired 25 percent of the outstanding voting shares of Q-Video, Inc., for $640,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of$1.6 million and $760,000, respectively. A customer list compiled by Q-Video had an appraised value of$366,000, although it was not recorded on its books. The expected remaining life of the customer list was six years with a straight-line amortization deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered goodwill.
Q-Video generated net income of $394,000 in 2017 and a net loss of$104,000 in 2018. In each of these two years, Q-Video declared and paid a cash dividend of $14,000 to its stockholders. During 2017, Q-Video sold inventory that had an original cost of$102,000 to Stream for $150,000. Of this balance,$75,000 was resold to outsiders during 2017, and the remainder was sold during 2018. In 2018, Q-Video sold inventory to Stream for $184,000. This inventory had cost only$138,000. Stream resold \$104,000 of the inventory during 2018 and the rest during 2019.