Assuming there are no excess amortizations or other intra-entity transactions, Compute the income from Devin reported on Pepe's books for 2018.
A) $190,200.
B) $196,000.
C) $194,400.
D) $187,000.
E) $195,000.

Question

Quizplus · Accepted Answer

To find the income from Devin reported on Pepe's books, we need to eliminate any intra-entity transactions. The only intra-entity transaction mentioned is the $20,000 unrealized profit on inventory sold from Pepe to Devin. This means we need to eliminate this profit from Devin's reported income.

Devin's reported income on his own books is calculated as:
Sales revenue - Cost of goods sold - Operating expenses = Net income
= $1,000,000 - $580,000 - $230,000 = $190,000

However, we need to adjust for the intra-entity transaction. Since $20,000 of the sales revenue was unrealized profit, we should subtract this from Devin's reported income to get his true income:
$190,000 - $20,000 = $170,000

Now, we can add this income to Pepe's books as an addition to net income:
$170,000 x 1.14 (Devin's ownership percentage) = $194,400

Therefore, the answer is C) $194,400.

Assuming There Are No Excess Amortizations or Other Intra-Entity Transactions