On January 1, Hillcrest Co. acquired a 40% interest in Preston, Inc. with the excess of purchase price over book value solely attributable to equipment with a ten-year life and undervaluation by $250,000. During the year of acquisition, Preston reported net income of $500,000. What amount of Equity Income should Hillcrest report on its income statement for the year of acquisition? Select one: A. $200,000 B. $210,000 C. $190,000 D. $250,000

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1 August, 02:13

On January 1, Hillcrest Co. acquired a 40% interest in Preston, Inc. with the excess of purchase price over book value solely attributable to equipment with a ten-year life and undervaluation by $250,000. During the year of acquisition, Preston reported net income of $500,000. What amount of Equity Income should Hillcrest report on its income statement for the year of acquisition? Select one: A. $200,000 B. $210,000 C. $190,000 D. $250,000

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Mireya Bautista · Answer 1

C. $190,000

Explanation:

As per the given question the solution of Income reported on Income statement is provided below:-

here, we ill find first share in equity income and depreciation expenses on undervalue equipment to reach the i ncome reported on Income statement

Share in equity income = Net income * Interest

= $500,000 * 40%

= $200,000

Depreciation expenses on undervalue equipment = undervaluation : Number of years * Interest

= $250,000 : 10 * 40%

= $10,000

Income reported on Income statement = Share in equity income - Depreciation expenses on undervalue equipment

= $200,000 - $10,000

= $190,000