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Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1, Year 2, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with this acquisition is $8,000 per year. During Year 2, Ticker earned an income of $108,000 and paid cash dividends of $36,000. Previously in Year 1, Ticker had sold inventory costing $ 28,800 to Starge for $48,000. All but 25% of this merchandise was consumed by Starge during Year 1. The remainder was used during the first few weeks of Year 2. Additional sales were made to Starge in Year 2; inventory costing $ 33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until Year 3. a. What amount of equity income would Starge have recognized in Year 2 from its ownership interest in Ticker? b. What was the balance in the Investment in Ticker Co. account at the end of Year 2? Equity income: $19,792; Investment in Ticker Co.: $401,136 Equity income: $22, 672; Investment in Ticker Co.: $413,872 Equity income: $24,400; Investment in Ticker Co.: $418,840 Eaquity income: $21,748; Investment in Ticker Co.: $410, 148

Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1, Year 2, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with this acquisition is $8,000 per year. During Year 2, Ticker earned an income of $108,000 and paid cash dividends of $36,000. Previously in Year 1, Ticker had sold inventory costing $ 28,800 to Starge for $48,000. All but 25% of this merchandise was consumed by Starge during Year 1. The remainder was used during the first few weeks of Year 2. Additional sales were made to Starge in Year 2; inventory costing $ 33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until Year 3. a. What amount of equity income would Starge have recognized in Year 2 from its ownership interest in Ticker? b. What was the balance in the Investment in Ticker Co. account at the end of Year 2? Equity income: $19,792; Investment in Ticker Co.: $401,136 Equity income: $22, 672; Investment in Ticker Co.: $413,872 Equity income: $24,400; Investment in Ticker Co.: $418,840 Eaquity income: $21,748; Investment in Ticker Co.: $410, 148

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 6E
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Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1, Year 2, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with this acquisition is $8,000 per year. During Year 2, Ticker earned an income of $108,000 and paid cash dividends of $36,000. Previously in Year 1, Ticker had sold inventory costing $ 28,800 to Starge for $48,000. All but 25% of this merchandise was consumed by Starge during Year 1. The remainder was used during the first few weeks of Year 2. Additional sales were made to Starge in Year 2; inventory costing $ 33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until Year 3. a. What amount of equity income would Starge have recognized in Year 2 from its ownership interest in Ticker? b. What was the balance in the Investment in Ticker Co. account at the end of Year 2? Equity income: $19,792; Investment in Ticker Co.: $401,136 Equity income: $22, 672; Investment in Ticker Co.: $413,872 Equity income: $24,400; Investment in Ticker Co.: $418,840 Eaquity income: $21,748; Investment in Ticker Co.: $410, 148
Transcribed Image Text:Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1, Year 2, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with this acquisition is $8,000 per year. During Year 2, Ticker earned an income of $108,000 and paid cash dividends of $36,000. Previously in Year 1, Ticker had sold inventory costing $ 28,800 to Starge for $48,000. All but 25% of this merchandise was consumed by Starge during Year 1. The remainder was used during the first few weeks of Year 2. Additional sales were made to Starge in Year 2; inventory costing $ 33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until Year 3. a. What amount of equity income would Starge have recognized in Year 2 from its ownership interest in Ticker? b. What was the balance in the Investment in Ticker Co. account at the end of Year 2? Equity income: $19,792; Investment in Ticker Co.: $401,136 Equity income: $22, 672; Investment in Ticker Co.: $413,872 Equity income: $24,400; Investment in Ticker Co.: $418,840 Eaquity income: $21,748; Investment in Ticker Co.: $410, 148
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