Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land it purchased from Stark in 2010 for $92,000 in 2012.
-Compute income from Stark reported on Parker's books for 2010.
A) $205,000.
B) $200,000.
C) $180,000.
D) $175,500.
E) $184,500.

Question

Quizplus · Accepted Answer

The income from Stark reported on Parker's books for 2010 is $184,500. This is calculated by taking Stark's reported net income of $200,000 and adjusting for the unrealized loss on the intercompany sale of land ($85,000 cost - $80,000 sale price = $5,000 loss). Since Parker owns 90% of Stark, the adjustment is 90% of $5,000, which is $4,500. Therefore, $200,000 - $4,500 = $195,500. However, the minority interest (10%) share of Stark's net income ($200,000 * 10% = $20,000) is not included in Parker's books, so the final reported income is $195,500 - $20,000 = $184,500.

Stark Company, a 90% Owned Subsidiary of Parker, Inc