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Pepe, Incorporated acquired 60% of Devin Company on January 1, 2017. On that date Devin sold...

Pepe, Incorporated acquired 60% of Devin Company on January 1, 2017. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2017 and 2018, respectively. Pepe uses the equity method to account for its investment in Devin. Assuming there are no excess amortizations or other intra-entity transactions, Compute the income from Devin reported on Pepe's books for 2018. Multiple Choice $190,200. $196,000. $194,400. $187,000. $195,000.

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Answer #1

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Correct option is: $194,400
Workings:
Devins Net Income = $            3,25,000
Less: Depreciation difference = $                  1,000
[($120000 - $66000)/9] - [$45000/9]
Total Income = $            3,24,000
Income from Devin reported under Pepe books for 2018 = $324000 X 60%
= $            1,94,400
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