White Company owns 60% of Cody Company. Separate tax returns are required. For 2020, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute Cody's undistributed earnings for 2021.

Question

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Cody's undistributed earnings for 2021 are $62,500. This is calculated as follows:Cody's pretax income for 2020 was $125,000.Cody's income tax expense for 2020 was $37,500 (30% x $125,000).Cody's net income for 2020 was $87,500 ($125,000 - $37,500).Cody's dividends declared for 2020 were $25,000.Cody's undistributed earnings for 2020 were $62,500 ($87,500 - $25,000).

White Company Owns 60% of Cody Company