Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. Compute the income from Devin reported on Pepe's books for 2011.
A) $190,200.
B) $196,000.
C) $194,400.
D) $187,000.
E) $195,000.

Question

Quizplus · Accepted Answer

To compute the income from Devin reported on Pepe's books for 2011, we need to first calculate Devin's total net income for 2011 and then multiply it by Pepe's share of ownership in Devin (i.e. 60%).

Devin's net income for 2011 = $325,000

Pepe's share of ownership in Devin = 60%

Income from Devin reported on Pepe's books for 2011 = 60% * $325,000 = $194,400.

Therefore, the correct answer is C) $194,400.

Pepe, Incorporated Acquired 60% of Devin Company on January 1