Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. 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 2012 and 2013, respectively. Pepe uses the equity method to account for its investment in Devin.
Compute the income from Devin reported on Pepe's books for 2012.
A) $174,600.
B) $184,800.
C) $172,000.
D) $171,000.
E) $180,000.

Question

Quizplus · Accepted Answer

(Sub's 2012 Income $300,000 + Unrealized Loss on Transferred Equipment $9,000 - First Annual Recognition of Loss $1,000) $308,000 × .60 = $184,800 Sub's Income Reported by Parent

Pepe, Incorporated Acquired 60% of Devin Company on January 1