Use the following information to answer the question(s)below.
Pew Corporation acquired 80% ownership of Sordid Incorporated,at a time when Pew's investment cost was equal to 80% of Sordid's book value.At the time of acquisition,the book values and fair values of Sordid's assets and liabilities were equal.Pew uses the equity method.During 2011,Pew sold goods to Sordid for $160,000 making a gross profit percentage of 20%.Half of these goods remained unsold in Sordid's inventory at the end of the year.Income statement information for Pew and Sordid for 2011 were as follows:

-What is Pew's income from Sordid for 2011?
A)$32,000
B)$48,000
C)$60,000
D)$75,000

Question

Use the following information to answer the question(s)below.
Pew Corporation acquired 80% ownership of Sordid Incorporated,at a time when Pew's investment cost was equal to 80% of Sordid's book value.At the time of acquisition,the book values and fair values of Sordid's assets and liabilities were equal.Pew uses the equity method.During 2011,Pew sold goods to Sordid for $160,000 making a gross profit percentage of 20%.Half of these goods remained unsold in Sordid's inventory at the end of the year.Income statement information for Pew and Sordid for 2011 were as follows:
 
-What is Pew's income from Sordid for 2011?
A)$32,000 
B)$48,000 
C)$60,000 
D)$75,000

Quizplus · Accepted Answer

A)
Equity in Sordid net income ($60,000 × 80%)$48,000
Less: Unrealized Profit (16,000)
Pew's income from Sordid $32,000

Use the Following Information to Answer the Question(s)below