Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate operating incomes for 2011 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also retains a $20,000 unrealized gain in their current income figures. Annual amortization expense of $15,000 is assigned to Chase's investment in Lawrence and another $15,000 is assigned to Lawrence's investment in Ross.
-Compute Lawrence's accrual-based income for 2011.
A) $354,000.
B) $329,500.
C) $334,000.
D) $265,000.
E) $344,500.

Question

Quizplus · Accepted Answer

Lawrence's accrual-based income is calculated by adjusting its operating income for unrealized gains and amortization. Starting with Lawrence's operating income of $300,000, subtract the $20,000 unrealized gain and the $15,000 amortization expense related to its investment in Ross. This results in an accrual-based income of $265,000. Additionally, Lawrence's share of Ross's adjusted income (after removing Ross's unrealized gain and amortization) is added. Ross's adjusted income is $215,000 ($250,000 - $20,000 - $15,000), and Lawrence's 30% share is $64,500. Adding this to $265,000 gives $329,500.

Chase Company Owns 80% of Lawrence Company and 40% of Ross