Gairdner Ltd holds a 25% interest in Lomond Ltd.Gairdner Ltd sold inventory in the current year to Lomond Ltd.and made a profit before tax of $10 000 on the transaction.Lomond Ltd held all of the inventory at year end.Lomond Ltd's operating profit before tax for the year was $100 000.The tax rate is 30%. What is Gairdner Ltd's share of Lomond Ltd's after- tax profit?

Question

Quizplus · Accepted Answer

To calculate Gairdner Ltd's share of Lomond Ltd's after-tax profit, we need to determine Lomond Ltd's after-tax profit first.

Lomond Ltd's profit before tax = $100,000 
Tax on Lomond Ltd's profit before tax = 30% x $100,000 = $30,000 
Lomond Ltd's profit after tax = $100,000 - $30,000 = $70,000

Next, we need to determine Gairdner Ltd's share of the profit. Since Gairdner Ltd holds a 25% interest in Lomond Ltd, their share of the profit would be:

Gairdner Ltd's share = 25% x $70,000 = $17,500

Therefore, the correct answer is C) $17,500.

Gairdner Ltd Holds a 25% Interest in Lomond Ltd