Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 2

Company R owns a 30% interest in Company E, which it acquires at book value. Company E reports net income of $50,000 for 2011 (ignore taxes). There is an intercompany sale of equipment at a gain of $20,000 on January 1, 2011. The equipment has a 5-year life. What is Company R's investment income for 2011, and what adjusting entry (if any) does Company R need to make as a result of the equipment sale, if:
a. Company E made the sale?
b. Company R made the sale?