Atlarge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and h

Question

Atlarge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1, 2011, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with the purchase of this investment is $8,000 per year. During 2011, Ticker earned an income of $108,000 and paid cash dividends of $36,000. Previously in 2010, Ticker had sold inventory costing $28,800 to Atlarge for $48,000. All but 25% of this merchandise was consumed by Atlarge during 2010. The remainder was used during the first few weeks of 2011. Additional sales were made to Atlarge in 2011; inventory costing $33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until 2012.

What amount of equity income would Atlarge have recognized in 2011 from its ownership
interest in Ticker?
A. $19,792.
B. $27,640.
C. $22,672.
D. $24,400.
E. $21,748.

What was the balance in the Investment in Ticker Co. account at the end of 2011?
A. $401,136.
B. $413,872.
C. $418,840.
D. $412,432.
E. $410,148.

Please post how you can up with the solution; show work.

Explanation / Answer

A.Solution-C.22672

Amount of unrealized inter-company inventory profit-

[(48,000-28,800)*.25*.30=$1,440

Amount of unrealized inter-company profit-

[(60,000-33,600)*.40*.30=$3,168

Amount of equity income would Atlarge have recognized in 2011 from its ownership interest-

[($108.000*.3)-8000-3,168+1,440=$22,672

B.Solution-B.$413872

Balance in the Investment In Tickler Co. account at the end of 2011

[$402,000+$22,672-($36,000*.3)]=$413,872

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