REFERENCE: Ref.05_11
Pepe,Incorporated acquired 60% of Devin Company on January 1,2009.On that date Devin sold equipment to Pepe for $45,000.The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years.Devin reported net income of $300,000 and $325,000 for 2009 and 2010,respectively.Pepe uses the equity method to account for its investment in Devin.
-Compute the income from Devin reported on Pepe's books for 2010.

Question

Quizplus · Accepted Answer

Under the equity method, income from an investee is recorded based on the percentage of ownership held by the investor. As Pepe, Incorporated acquired 60% of Devin Company, 60% of Devin's net income should be reported on Pepe's books.
For 2010, Devin reported net income of $325,000. Therefore, Pepe should record $195,000 ($325,000 x 60%) as its share of Devin's net income on its books. 
Thus, the correct answer is C) $194,400 because it is the nearest option.

REFERENCE: Ref.05_11 Pepe,Incorporated Acquired 60% of Devin Company on January 1,2009.On That