Question

Sculley Co. uses the sophisticated equity method to account for the 70% investment in its subsidiary Powers Corp. At the time of the acquisition, the fair values of the net asset required approximated their book values. Based upon the following information, what amount does Sculley Co. record as subsidiary income?

​

Sculley Co. internally generated income:	$125,000
Powers Corp. internally generated income:	$ 75,000
Intercompany profit on Power’s Corp. beginning inventory:	$ 20,000
Intercompany profit on Power’s Corp ending inventory:	$ 10,000

	a.	$59,500
	b.	​$75,000
	c.	​$135,000
	d.	​$200,000

	I need help with the income distribution schedule below
	Subsidiary Company Income Distribution Schedule Deferred profit in ending inventory 10,000 Internally generated net income 75,000 ​ ​ ​ Realized profit in beginning inventory 10,000 ​ ​ ​ ​ ​ ​ ​ ​ Adjusted income 85,000 ​ ​ ​ Parent share 70% ​ ​ ​ Subsidiary income ​ ​ ​ ​ ​ ​ ​ ​

Answer 1

Subsidiary Company Income Distribution Schedule Deferred profit in ending inventory $10,000 Internally generated net income Realized Profit in beginning inventory $75,000 $20,000 Adjusted Income Sculley Co's Share (Parent share) Subsidiary Income $85,000 ($75,000 + $20,000 - $10,000) 70% $59,500 ($85,000 * 70%) The correct answer is (a) - $59,500