Question

"Pepe, Incorporated acquired 60% of Devin Company on January 1, 2018. On that date, Devin sold equipment to Pep for $45,000. On the sale date, 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 for 2018. Pep uses the equity method to account for its investment in Devin. What is the amount of income from investment in Devin for 2018

Answer 1

Amount of income from investment in Devin for 2018 = $184,800

Step-by-step explanation:

As per the data given in the question,

Net income for 2018 = $300,000

Loss on sale of equipment = ($120,000 - $66,000 -$45,000)

= $9,000

Difference in depreciation = ($120,000 - $66,000) ÷ 9 - $45,000 ÷ 9

= $1,000

Total income = $300,000 + $9,000 - $1,000

= $308,000

Amount of income from investment in Devin for 2018 = $308,000 × 60%

= $184,800