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, 2008, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with this acquisition is $8,000 per year. During 2008, Ticker earned an income of $108,000 and paid cash dividends of $36,000. Previously in 2007, Ticker had sold inventory costing $28,800 to Starge for $48,000. All but 25% of this merchandise was consumed by Starge during 2007. The remainder was used during the first few weeks of 2008. Additional sales were made to Starge in 2008; inventory costing $33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until 2009.
a. What amount of equity income would Starge have recognized in 2008 from its ownership interest in Ticker?
b. What was the balance in the Investment in Ticker Co. account at the end of 2008?
a. Equity income: $19,792; Investment in Ticker Co.: $401,136
b. Equity income: $22,672; Investment in Ticker Co.: $413,872
c. Equity income: $24,400; Investment in Ticker Co.: $418,840
d. Equity income: $21,748; Investment in Ticker Co.: $410,148
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