Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends.
Compute the equity in earnings of Gargiulo reported on Posito's books for 2013.
A) $76,500.
B) $77,130.
C) $75,870.
D) $75,600.
E) $75,800.

Question

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012.  Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. 
Compute the equity in earnings of Gargiulo reported on Posito's books for 2013.
A) $76,500. 
B) $77,130. 
C) $75,870. 
D) $75,600. 
E) $75,800.

Quizplus · Accepted Answer

Parent's Part of Net Income 2013 ($85,000 × .90) $76,500 - Earnings Adjustment for Unrealized Gains of Sub 2013 ($4,000 × .25 × .90) $900 + (Realized Gains of Sub for 2012) $270 = $75,870

Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells