Question

Atlarge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee’s operations and decision-making. On January 1, 2018, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with the purchase of this investment is $8,000 per year. During 2018, Ticker earned income of $108,000 and paid cash dividends of $36,000. Previously in 2010, Ticker had sold inventory costing $28,800 to Atlarge for $48,000. All but 25% of this merchandise was consumed by Atlarge during 2010. The remainder was used during the first few weeks of 2011. Additional sales were made to Atlarge in 2011; inventory costing $33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until 2012.

1. What amount of equity income would Atlarge have recognized in 2011 from its ownership interest in Ticker?
A. $19,792.
B. $27,640.
C. $22,672.
D. $24,400.
E. $21,748.

Answer 1

Step-by-step explanation:

2018 Beginning Balance = $402,000

2018 Income Recognized = $22,672

2018 Dividend Received = ($36,000 × 30%) = $10,800

2018 Ending Balance = ($402,000 + $22,672 - $10,800)

2018 Ending Balance = $413,872