Peregrine Corporation acquired an 80% interest in Serine Corporation in 2009 at a time when Serine's book values and fair values were equal to one another.On January 1, 2012, Serine sold a truck with a $55,000 book value to Peregrine for $100,000.Peregrine is depreciating the truck over 10 years using the straight-line method.The truck has no salvage value.Separate incomes for Peregrine and Serine for 2012 were as follows: Peregrine's investment income from Serine for 2012 was

Question

Peregrine Corporation acquired an 80% interest in Serine Corporation in 2009 at a time when Serine's book values and fair values were equal to one another.On January 1, 2012, Serine sold a truck with a $55,000 book value to Peregrine for $100,000.Peregrine is depreciating the truck over 10 years using the straight-line method.The truck has no salvage value.Separate incomes for Peregrine and Serine for 2012 were as follows:  Peregrine's investment income from Serine for 2012 was

Quizplus · Accepted Answer

Peregrine's investment income from Serine for 2012 can be calculated as follows:
- Serine sold a truck with a book value of $55,000 to Peregrine for $100,000, resulting in a gain of $45,000 for Serine.
- Since Peregrine owns 80% of Serine, it is entitled to 80% of Serine's gain, which is $36,000.
- Peregrine will depreciate the truck over 10 years using the straight-line method, which means that the annual depreciation expense will be $4,500 ($45,000 / 10).
- Since Peregrine owns 80% of the truck, its share of the annual depreciation expense is $3,600 ($4,500 x 80%).
- Peregrine's share of Serine's income for 2012 is calculated as follows:
    - Serine's income for 2012 (from the table) = $294,000
    - Add back depreciation expense (from the table) = $60,000
    - Total income before considering the gain on sale of the truck = $354,000
    - Add Peregrine's share of the gain on sale of the truck = $36,000
    - Subtract Peregrine's share of the annual depreciation expense = $3,600
    - Peregrine's share of Serine's income for 2012 = $386,400
- Therefore, Peregrine's investment income from Serine for 2012 is $147,600 ($386,400 x 80%).

Peregrine Corporation Acquired an 80% Interest in Serine Corporation in 2009