Upstream sales
Pid Corporation owns an 80 percent interest in Sed Corporation and at December 31, 2011, Pid’s investment in Sed on an equity basis was equal to 80 percent of Sed’s stockholders’ equity. During 2012, Sed sells merchandise to Pid for $200,000, at a gross profit to Sed of $40,000. At December 31, 2012, half of this merchandise is included in Pid’s inventory. Separate incomes for Pid and Sed for 2012 are summarized as follows:
|
Pid |
Sed |
|
|
Sales |
$1,000,000 |
$600,000 |
|
Cost of sales |
(500,000 ) |
(400,000 ) |
|
Gross profit |
500,000 |
200,000 |
|
Operating expenses |
(250,000) |
(80,000 ) |
|
Separate incomes |
$ 250,000 |
$120,000 |
1. Pid’s income from Sed for 2012 is:
a $96,000
b $80,000
c $76,000
d $56,000