Acker Inc Bought 40% of Howell Co

question 24

Multiple Choice

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year.What is the Equity in Howell Income that should be reported by Acker in 2020?

• A) $10,000.
• B) $24,000.
• C) $36,000.
• D) $38,400.
• E) $40,000.

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Definitions:

Flexible Budgets

Budgets that adjust or vary with changes in volume or activity levels of the business.

Actual Overhead

The real costs incurred by a business for overhead, such as rent, utilities, and administrative expenses, during a specific period.

Budgeted Manufacturing

The process of estimating future production costs, including materials, labor, and overhead, for a specific period.

Manufacturing Overhead

Indirect factory-related costs that are incurred when producing a product, which can include utilities, maintenance, and factory equipment depreciation.