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 Maroon Corp. 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 Maroon Corp. is calculated to be

Quizplus · Accepted Answer

To calculate the accrual-based income of Maroon Corp., we need to add the operating income of Maroon and the share of operating income of Eckston (which is 90% of Eckston's operating income).

Maroon Corp.'s operating income = $500,000

90% of Eckston's operating income = 90% x $80,000 = $72,000

However, we need to adjust for the intra-entity unrealized gain of $56,000. Since this gain was included in Eckston's operating income, we need to reduce it from Maroon's income. So, the adjusted operating income of Eckston is $80,000 - $56,000 = $24,000.

Therefore, the accrual-based income of Maroon Corp. is:

$500,000 + 80% x $24,000 = $481,600.

Hence, the answer is A) $481,600.

Beagle Co Owned 80% of Maroon Corp