Question

PART ONE: Mulan owns 90% of China. On January 1, 2016, China Company sold equipment costing...

PART ONE: Mulan owns 90% of China. On January 1, 2016, China Company sold equipment costing $100,000 to Mulan for $160,000. The equipment has a 10 year life. Both firms use straight line depreciation. During 2016, China reported $200,000 net income. Based on this information, which of the following investment entries should Palm make in 2016?

$120,000

$126,000

$131,400

$180,000

PART TWO: This problem is based on information in the preceding question. Mulan owns 90% of China. On January 1, 2016, China Company sold equipment costing $100,000 to China Company for $160,000. The equipment has a 10 year life. Both firms use Straight-Line Depreciation. During 2016 and 2017, China reported Net Incomes of $200,000 and $300,000, respectively. Based on this information, how much investment income should China record in 2017?

$240,000

$270,000

$275,400

None of the above

PART THREE: This question builds on the prior question. Mulan owns 90% of China. On January 2, 2016, China Company sold equipment costing $100,000 to Mulan Company for $160,000. The equipment has a 10 year life. Both firms use Straight Line Depreciation. During 2016 and 2017, China reported Net Incomes of $200,000 and $300,000, respectively. Based on this information, how much investment income should Mulan record in 2017? Prepare the worksheet entries to consolidate the trial balances of Mulan and China on 12/31/2017. You do not need to eliminate the investment account. Show supporting calculations

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