Question

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin.

(1) Compute the income from Devin reported on Pepe's books for 2010.
(2) Compute the income from Devin reported on Pepe's books for 2011.
(3) Compute the noncontrolling interest in the net income of Devin for 2010.

Answer 1

Answer: See explanation

Step-by-step explanation:

(1) Compute the income from Devin reported on Pepe's books for 2010.

Net Income reported by Devin for 2010 = $300000

Add: Loss on Sale of Equipment = ($120000 - $66000 - $45000) = $9000

Less: Difference in Depreciation = ($54000/9) - ($45000/9) = $6000 - $5000 = $1000

Total Income from Devin for 2010 = $300000 + $1000 - $9000 = $308000

The Income from Devin reported on Pepe's books for 2010 will be:

= $308000 × 60%

= $308000 × 0.6

= 184800

2. Compute the income from Devin reported on Pepe's books for 2011.

Net Income reported by Devin for 2011 = $325000

Less: Difference in Depreciation = ($54000/9) - ($45000/9) = $6000 - $5000 = $1000

Total Income from Devin for 2011 = $325000 - $1000 = $324000

The Income from Devin reported on Pepe's books for 2011 will be:

= $308000 × 60%

= $308000 × 0.6

= $194400

(3) Compute the noncontrolling interest in the net income of Devin for 2010.

The noncontrolling interest in the net income of Devin for 2010 will be:

= $308000 - $184800

= $123200