Company P Owns a 30% Interest in Company S and Accounts

Multiple Choice

Company P owns a 30% interest in Company S and accounts for the investment under the sophisticated equity method.The investment was purchased at underlying book value, and there is no excess of cost or book value.Company S sells merchandise to Company P at cost plus 25%.Intercompany sales during 20X1 were $100,000.There were $20,000 worth of such goods in Company P's beginning inventory and $30,000 worth of such goods in Company P's ending inventory.Company S's reported income for 20X1 is $40,000, and no dividends were paid.What amount will Company P record as investment income in 20X1?

A) ​$12,000
B) ​$11,400
C) ​$9,750
D) ​$4,500