REFERENCE: Ref.01_14 Acker Inc.bought 40% of Howell Co.on January 1,2008 for $576,000.The

question 89

Multiple Choice

REFERENCE: Ref.01_14
Acker Inc.bought 40% of Howell Co.on January 1,2008 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 2008 and $120,000 in 2009 while paying $40,000 in dividends each year.
-What is the Equity in Howell Income that should be reported by Acker in 2008?

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

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Definitions:

Financier Lessor

An entity engaged in the business of leasing out assets, typically providing the finance to purchase the asset which is then leased to the user.

Lease Receivable

An asset representing the right to receive future lease payments from lessees under lease agreements, reflecting the value of the asset leased out.

Operating Leases

Leases in which the lessee obtains the right to use an asset for a short period of time, without assuming the risks and rewards of ownership.

Initial Direct Costs

Expenses that are directly attributable to negotiating and arranging a lease, which are added to the carrying amount of the leased asset or deducted from the leasing income.