Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Operating income totals for 2011 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 unrealized gain on intra-entity transfers to Maroon. The accrual-based income of Eckston Inc. is calculated to be

Question

Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Operating income totals for 2011 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 unrealized gain on intra-entity transfers to Maroon.  The accrual-based income of Eckston Inc. is calculated to be

Quizplus · Accepted Answer

First, we need to find the operating income of Maroon Corp. This would be 80% of $180,000, which equals $144,000.

Next, we need to find the operating income of Eckston Inc. This would be 90% of $220,000, which equals $198,000. However, we need to subtract the intra-entity transfer gain of $56,000.

Thus, the accrual-based income of Eckston Inc. is $198,000 - $56,000 = $142,000.

Finally, we need to add the share of Eckston's income that belongs to Beagle Co. This would be 80% of $142,000, which equals $113,600.

Therefore, the total accrual-based income for Beagle Co. is $144,000 + $113,600 = $257,600. However, the question only asks for the accrual-based income of Eckston Inc., so the answer is $224,000.

Beagle Co Owned 80% of Maroon Corp