Pied Imperial Corporation acquired a 90% interest in Somest Corporation in 2012 when Somest's book values were equivalent to fair values.Somest sold equipment with a book value of $80,000 to Pied for $130,000 on January 1,2014.Pied is fully depreciating the equipment over a 4-year period by using the straight-line method.Somest reported net income for 2014 was $320,000.Pied's 2014 income from Somest was

Question

Quizplus · Accepted Answer

Pied's 90% share of Somest's 2014 income can be calculated as follows:

Net income reported by Somest: $320,000
Adjustment for excess depreciation on equipment:
($130,000 - $80,000) / 4 years * 90% = $9,000
Adjusted net income: $329,000
Pied's share: $329,000 * 90% = $296,100

Therefore, Pied's 2014 income from Somest was $254,250 (since the question asked for Pied's income, not Somest's).

Pied Imperial Corporation Acquired a 90% Interest in Somest Corporation