Pear Co.’s income statement for the year ended December 31, 2006, as prepared by Pear’s controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes:


Unrealized gain on available-for-sale investment


Equity in earnings of Cinn Co.


Dividends received from Cinn


Adjustments to profits of prior years for arithmetical errors in depreciation


Pear owns 40% of Cinn’s common stock. Pear’s December 31, 2006 income statement should report income before taxes of

  1. $ 85,000
  2. $117,000
  3. $112,000
  4. $152,000