Figure:
Acker Inc Howell Reported Net Income of $100,000 in 2010 and $120,000

question 23

Multiple Choice

Figure:
Acker Inc. bought 40% of Howell Co. on January 1, 2010 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: $\begin{array}{cccc}\text { Year } & \begin{array}{c}\text { Cost to } \\\text { Acker }\end{array} & \begin{array}{c}\text { Transfer } \\\text { Price }\end{array} & \begin{array}{c}\text { Amount Held by } \\\text { Howell at Year-End }\end{array} \\2010 & \$ 55,000 & \$ 75,000 & \$ 15,000 \\2011 & \$ 70,000 & \$ 110,000 & \$ 55,000\end{array}$ Howell reported net income of $100,000 in 2010 and $120,000 in 2011 while paying $40,000 in dividends each year.
-What is the Equity in Howell Income that should be reported by Acker in 2010?

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

---

Definitions:

Output

Represents the total amount of goods and services produced by an economy over a specific period.

Average Variable Cost

The total variable costs (costs that change with the amount of output produced) divided by the quantity of output produced.

Fixed Cost

Costs that do not vary with the level of output or activity, such as rent or salaries.

Marginal Cost

The increased cost incurred from making one more unit of a product or service.