On January 1,2008,Pond Co.acquired 40% of the outstanding voting common shares of Ramp Co.for $700,000.On that date,Ramp reported assets and liabilities with book values of $2.2 million and $700,000,respectively.A building owned by Ramp had an appraised value of $300,000,although it had a book value of only $120,000.This building had a 12-year remaining life and no salvage value.It was being depreciated on the straight-line basis.
Ramp generated net income of $300,000 in 2008 and a loss of $120,000 in 2009.In each of these two years,Ramp paid a cash dividend of $70,000 to its stockholders.
During 2008,Ramp sold inventory to Pond that had an original cost of $60,000.The merchandise was sold to Pond for $96,000.Of this balance,$72,000 was resold to outsiders during 2008 and the remainder was sold during 2009.In 2009,Ramp sold inventory to Pond for $180,000.This inventory had cost only $108,000.Pond resold $120,000 of the inventory during 2009 and the rest during 2010.
Required:
For 2008 and then for 2009,calculate the equity income to be reported by Pond for external reporting purposes.

Question

Quizplus · Accepted Answer

The Answer of On January 1,2008,Pond Co.acquired 40% of the outstanding voting common shares of Ramp Co.for $700,000.On that date,Ramp reported assets and liabilities with book values of $2.2 million and $700,000,respectively.A building owned by Ramp had an appraised value of $300,000,although it had a book value of only $120,000.This building had a 12-year remaining life and no salvage value.It was being depreciated on the straight-line basis.
Ramp generated net income of $300,000 in 2008 and a loss of $120,000 in 2009.In each of these two years,Ramp paid a cash dividend of $70,000 to its stockholders.
During 2008,Ramp sold inventory to Pond that had an original cost of $60,000.The merchandise was sold to Pond for $96,000.Of this balance,$72,000 was resold to outsiders during 2008 and the remainder was sold during 2009.In 2009,Ramp sold inventory to Pond for $180,000.This inventory had cost only $108,000.Pond resold $120,000 of the inventory during 2009 and the rest during 2010.
Required:
For 2008 and then for 2009,calculate the equity income to be reported by Pond for external reporting purposes.