Delta Corporation owns 90 percent of Sigma Company, and Sigma owns 90 percent of Pi, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows:
-What is Sigma's accrual-based income for 2011?

Question

Delta Corporation owns 90 percent of Sigma Company, and Sigma owns 90 percent of Pi, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows: 
-What is Sigma's accrual-based income for 2011?

Quizplus · Accepted Answer

Sigma's accrual-based income can be calculated as follows: 
Sigma's revenue: $1,200,000 x 90% = $1,080,000 
Sigma's expenses: ($360,000 + $240,000) x 90% = $540,000 
Sigma's net income: $1,080,000 - $540,000 = $540,000 
Pi's net income: $200,000 x 90% = $180,000 
Sigma's income from Pi: $180,000 x 90% = $162,000 
Sigma's total net income: $540,000 + $162,000 = $702,000 
Delta's share of Sigma's net income: $702,000 x 90% = $631,800 
Sigma's accrual-based income: $702,000 - $631,800 = $70,200 
Therefore, the correct answer is D) $572,800.

Delta Corporation Owns 90 Percent of Sigma Company, and Sigma