Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of Gamma, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows:
-What is Gamma's accrual-based income for 2011?
A) $76,000.
B) $80,000.
C) $96,000.
D) $100,000.
E) $104,000.

Question

Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of Gamma, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows: 
-What is Gamma's accrual-based income for 2011?
A) $76,000. 
B) $80,000. 
C) $96,000. 
D) $100,000. 
E) $104,000.

Quizplus · Accepted Answer

First, we need to find Beta's income, which is $80,000 ($100,000 total income * 80% ownership). 
Next, we need to find Alpha's income, which is $80,000 from Beta plus their own income of $60,000, for a total of $140,000 ($60,000 + $80,000 from Beta), since they own 100% of Beta. 
Finally, we can calculate Gamma's income by taking 80% of Beta's income, which is $64,000 ($80,000 * 80%), and adding it to their own income of $32,000. So, Gamma's accrual-based income for 2011 is $96,000 ($64,000 + $32,000).

Alpha Corporation Owns 100 Percent of Beta Company, and Beta