What amount of equity income would Atlarge have recognized in 2018 from its ownership interest in Ticker?

Question

Quizplus · Accepted Answer

From the information provided in the question, we can calculate equity income as follows:

Equity Income = Dividends received + Share of earnings of investee

Dividends received = ($200,000 x 5%) = $10,000.

To calculate the share of earnings of investee, we need to adjust the investee's net income for the amortization of excess purchase price, as follows:

Investee's net income = $300,000 - $60,000 (amortization of excess purchase price) = $240,000.

Share of earnings of investee = 30% x $240,000 = $72,000.

Therefore, total equity income = Dividends received + Share of earnings of investee = $10,000 + $72,000 = $82,000.

Hence, the correct choice is C ($22,672). The other options are either miscalculations or incorrect combinations of dividend and share of earnings.

What Amount of Equity Income Would Atlarge Have Recognized in 2018