Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells

question 6

Multiple Choice

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2012. $\begin{array}{lrrr}&2012&2013&2014\\\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \\\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000\end{array}$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $$\begin{array} { l c c c } & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\text { Gargiulo's net income } & \mathbf { \$ 7 0 , 0 0 0 } & \mathbf { \$ 8 5 , 0 0 0 } & \mathbf { \$ 9 4 , 0 0 0 } \\\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000\end{array}$$ Compute the equity in earnings of Gargiulo reported on Posito's books for 2013.

• A)$76,500.
• B)$77,130.
• C)$75,870.
• D)$75,600.
• E)$75,800.

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Definitions:

Adjusted Trial Balance

A financial statement that displays all balances of accounts after adjustments have been made, used to prepare final financial statements.

Unadjusted Trial Balance

A list of all the general ledger accounts and their balances at a specific point in time before any adjustments are made for the accounting period.

Columnar Working Paper

An accounting paper used for preparing financial statements or other reports, organized with columns to facilitate data entry and comparison.

Adjusted Trial Balance

A statement listing all accounts and their final balances after adjustments, used to verify the balance of debits and credits.