Question 1 (2 points)
Gargiulo Company, a 90% owned subsidiary of Posito Corporation, transfers inventory to Posito at
a 25% gross profit rate. The following data are available pertaining specifically to Posito's intra-
entity purchases from Gargiulo. Gargiulo was acquired on January 1, 2017.
2017 2018 2019
Purchases by Posito $8,000 $12,000 $15,000
Ending inventory on Posito's books 1,200 4,000 3,000
Assume the equity method is used. The following data are available pertaining to Gargiulo's income
and dividends.
Gargiulo's net income 2017 2018 2019
Dividends paid by Gargiulo $70,000 $85,000 $94,000
10,000 10,000 15,000
Compute the equity in earnings of Gargiulo reported on Posito's books for 2018.