In 20X6, Vines Inc. (Vines) purchased 40% of the common shares of Bottles Inc. (Bottles). At the time, there were no fair value differentials. In 20X7, Vines sold inventory to Bottles for $80,000. $25,000 of this remained at year end. This inventory was sold by Bottles in 20X8. Also during 20X8, Vines sold additional inventory to Bottles for $60,000 of which $30,000 remains in inventory. Vines earns a gross profit of 30% on sales of its inventory. Both companies pay income taxes at 25%. During 20X8, Bottles earned net income of $200,000. What is the amount of equity income reported by Vines in 20X8?
In 20X6, Vines Inc. (Vines) purchased 40% of the common shares of Bottles Inc. (Bottles). At the time, there were no fair value differentials. In 20X7, Vines sold inventory to Bottles for $80,000. $25,000 of this remained at year end. This inventory was sold by Bottles in 20X8. Also during 20X8, Vines sold additional inventory to Bottles for $60,000 of which $30,000 remains in inventory. Vines earns a gross profit of 30% on sales of its inventory. Both companies pay income taxes at 25%. During 20X8, Bottles earned net income of $200,000. What is the amount of equity income reported by Vines in 20X8?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- In 20X6, Vines Inc. (Vines) purchased 40% of the common shares of Bottles Inc. (Bottles). At the time, there were no fair value differentials. In 20X7, Vines sold inventory to Bottles for $80,000. $25,000 of this remained at year end. This inventory was sold by Bottles in 20X8. Also during 20X8, Vines sold additional inventory to Bottles for $60,000 of which $30,000 remains in inventory. Vines earns a gross profit of 30% on sales of its inventory. Both companies pay income taxes at 25%. During 20X8, Bottles earned net income of $200,000. What is the amount of equity income reported by Vines in 20X8?
A. $79,400
B. $79,550
C. $80,000
D. $80,450
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