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 noncontrolling interest. White paid dividends of $180,000. The income tax rate for both companies is 30%.
-Compute Cody's undistributed earnings for 2011.

Question

Quizplus · Accepted Answer

Cody's undistributed earnings for 2011 are $62,500. This is calculated as follows:Cody's net income for 2011 = $125,000 - ($125,000 x 0.30) = $87,500Cody's dividends paid for 2011 = $15,000 + $10,000 = $25,000Cody's undistributed earnings for 2011 = $87,500 - $25,000 = $62,500

White Company Owns 60% of Cody Company