Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Operating income totals for 2011 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 unrealized gain on intra-entity transfers to Maroon.
-The accrual-based income of Beagle Co. is calculated to be
A) $706,670.
B) $755,980.
C) $805,280.
D) $838,150.
E) $815,770.

Question

Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Operating income totals for 2011 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 unrealized gain on intra-entity transfers to Maroon. 
-The accrual-based income of Beagle Co. is calculated to be
A) $706,670. 
B) $755,980. 
C) $805,280. 
D) $838,150. 
E) $815,770.

Quizplus · Accepted Answer

Beagle Co.'s operating income = Maroon Corp.'s operating income + share of Maroon's operating income (80% x Maroon's operating income)
Maroon Corp.'s operating income = Eckston Inc.'s operating income + share of Eckston's operating income (90% x Eckston's operating income) + unrealized gain on intra-entity transfers from Eckston ($56,000)
Therefore, Beagle Co.'s operating income = Eckston Inc.'s operating income + share of Eckston's operating income (80% x 90% x Eckston's operating income) + unrealized gain on intra-entity transfers from Eckston ($56,000)

Substituting the values from the table, we get:
Beagle Co.'s operating income = $665,000 + (80% x 90% x $440,000) + $56,000 = $805,280

Therefore, the accrual-based income of Beagle Co. is $805,280.

Beagle Co Owned 80% of Maroon Corp