REFERENCE: Ref.05_05 Gargiulo Company,a 90% Owned Subsidiary of Posito Corporation,sells Inventory to Inventory

question 45

Multiple Choice

REFERENCE: Ref.05_05
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 intercompany purchases.Gargiulo was acquired on January 1,2009.
Assume the equity method is used.The following data are available pertaining to Gargiulo's income and dividends.

-Compute the income from Gargiulo reported on Posito's books for 2009.

• A)$63,000.
• B)$62,730.
• C)$63,270.
• D)$70,000.
• E)$62,700.

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Definitions:

Direct Method

An accounting approach where costs are directly traced to objects, such as products or services, without using cost drivers or allocation bases.

Cost of Goods Sold

The direct expenses tied to the production of goods sold by a company, including the cost of the materials and labor directly used to create the good.

Direct Method

A way of preparing the cash flow statement where actual cash flow information from the company's operations is used, instead of being derived from the income statement.

Cost of Goods Sold

The expenses directly tied to the manufacturing of the products a company sells, including labor and materials.