The following information is available concerning transactions between a parent and its wholly-owned subsidiary for the current year.

• The subsidiary purchased land from its parent in a prior year, at a cost of $400,000. The parent had reported the land on its books at $300,000.
• The parent sells merchandise to the subsidiary. The subsidiary’s beginning inventory includes intercompany profit of $50,000, and its ending inventory includes intercompany profit of $65,000. Total sales from the parent to the subsidiary were $600,000.
• The parent sold equipment to the subsidiary at the beginning of the current year for $300,000 and reported a gain of $45,000. The equipment has a 5-year life, straight-line.

Required
Compute equity in net income of the subsidiary, reported on the parent’s books, for the current year. The parent uses the complete equity method, the subsidiary reports net income of $100,000 on its own books, and there are no revaluation write-offs for the year.

Answer rating: 100% (QA)

Computation of equity in net income of the subsidiary to be reported on the parents books in c... View the full answer