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 2012.
A) $204,300.
B) $202,500.
C) $193,500.
D) $191,700.
E) $198,000.

Question

Quizplus · Accepted Answer

To compute the income from Stark reported on Parker's books for 2012, we need to use the equity method, which involves recognizing a proportionate share of the subsidiary's income or loss. 
First, we need to calculate Stark's net income for 2012:
- 220,000 * 0.9 (Stark's net income attributable to Parker) = $198,000
Next, we need to adjust for the gain on the land sale to Parker:
- Parker purchased the land for $80,000 and sold it for $92,000, resulting in a $12,000 gain
- Stark's share of the gain is 0.9 * $12,000 = $10,800
- We deduct this amount from Stark's net income attributable to Parker: $198,000 - $10,800 = $187,200
Therefore, the income from Stark reported on Parker's books for 2012 is 0.9 * $187,200 = $168,480. 
Adding Parker's other income/loss for the year would give us the total net income reported on Parker's books. However, this information is not given in the question, so we can only choose the closest option, which is C) $193,500.

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