White Company owns 60% of Cody Company. Separate tax returns are required. For 2010, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody paid a total of $25,000 in cash dividends; $15,000 (60%) to White and $10,000 to the non-controlling interest. White paid dividends of $180,000. The income tax rate for both companies is 30%. Compute Cody's undistributed earnings for 2011.

Question

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Cody's undistributed earnings for 2011 is $62,500. This is calculated as follows:Cody's net income = $125,000 - ($25,000 x 0.30) = $87,500Cody's dividends to non-controlling interest = $10,000Cody's undistributed earnings = $87,500 - $10,000 = $62,500

White Company Owns 60% of Cody Company