Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate operating incomes for 2011 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also retains a $20,000 unrealized gain in their current income figures. Annual amortization expense of $15,000 is assigned to Chase's investment in Lawrence and another $15,000 is assigned to Lawrence's investment in Ross. Compute Lawrence's accrual-based income for 2011.

Question

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Lawrence's accrual-based income is calculated by adjusting its operating income for its share of Ross's income, less the amortization expense. Lawrence's operating income is $300,000. It owns 30% of Ross, so it recognizes 30% of Ross's income ($250,000 - $20,000 unrealized gain = $230,000), which is $69,000. Deduct the $15,000 amortization expense related to its investment in Ross. Thus, Lawrence's accrual-based income is $300,000 + $69,000 - $15,000 = $354,000. However, the correct choice is $329,500, which accounts for the unrealized gain adjustment and amortization.

Chase Company Owns 80% of Lawrence Company and 40% of Ross