Rin Owns 90% of Stempy Inc How Much Intercompany (After-Tax) Profit Was Realized During 2020 on the Investment
Rin owns 90% of Stempy Inc. On January 1, 2019, the investment in Stempy account had a balance of $350,000 and Stempy's common shares and retained earnings on that date were valued at $200,000 and $100,889 respectively. Moreover, the assets to which the unamortized acquisition differential relates had a remaining life of 10 years on that date. Rin uses the equity method to account for its investment in Stempy. The tax rate for both companies is zero.
Rin sold depreciable assets to Stempy on January 1, 2019 at an after-tax gain of $10,000. On January 1, 2020, Stempy sold depreciable assets to Rin at an after-tax gain of $20,000. Both assets are being depreciated over 10 years.
Stempy's Net Income and Dividends for 2019 and 2020 are shown below.
How much intercompany (after-tax) profit was realized during 2020 on Stempy's 2020 sale of assets to Rin?
A) $18,000
B) $1,000
C) $2,000
D) $1,800.
Correct Answer:
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