Phast Corporation owns a 80% interest in Stechno Company, acquired several years ago at a cost equal to book value and fair value. Stechno sells merchandise to Phast for the first time in 2014, and some is unsold at December 31, 2014. In computing income from the investee for 2014 under the equity method, Phast uses which equation? A.80% of Stechno's income plus 100% of the unrealized profit in Phast's ending inventory B.80% of Stechno's income less 80% of the unrealized profit in Phast's ending inventory C.80% of Stechno's income plus 80% of the unrealized profit in Phast's ending inventory D.80% of Stechno's income less 100% of the unrealized profit in Phast's ending inventory

THE PARENT COMPANY BALANCE IS ADDED TO THE SUBSIDIARY'S BALANCE BUT ANY UNREALIZED PROFIT REMAINING…

Answered: A. 80% of Stechno's income plus 100%…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Phast Corporation owns a 80% interest in Stechno Company, acquired several years ago at a cost equal to book value and fair value. Stechno sells merchandise to Phast for the first time in 2014, and some is unsold at December 31, 2014. In computing income from the investee for 2014 under the equity method, Phast uses which equation?

	A.	80% of Stechno's income plus 100% of the unrealized profit in Phast's ending inventory
	B.	80% of Stechno's income less 80% of the unrealized profit in Phast's ending inventory
	C.	80% of Stechno's income plus 80% of the unrealized profit in Phast's ending inventory
	D.	80% of Stechno's income less 100% of the unrealized profit in Phast's ending inventory

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