Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influencethe 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 anincome 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 remainderwas 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.: $401,136Equity income: $22, 672; Investment in Ticker Co.: $413,872Equity income: $24,400; Investment in Ticker Co.: $418,840Eaquity income: $21,748; Investment in Ticker Co.: $410,148

Formula: Equity Income=(Ticker's Income x Ownership Percentage)−Amortization−Deferred Profit…

Answered: Starge Inc. owns 30% of the outstanding…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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