Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2010, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2010 and 2011, respectively. Leo uses the equity method to account for its investment. Compute income from Stiller on Leo's books for 2011.
A) $140,000.
B) $97,000.
C) $125,000.
D) $100,000.
E) $112,000.

Question

Quizplus · Accepted Answer

Leo's share of Stiller's net income for 2011 is 80% of $140,000, which is $112,000. The unrealized gain from the land sale in 2010 does not affect the 2011 income calculation.

Stiller Company, an 80% Owned Subsidiary of Leo Company, Purchased