P owns 80% of SI, and SI owns 70% of S2. Separate incomes of P, SI, and S2 are $20,000, $10,000, and $5,000, respectively, for 2006. During 2006, SI sold land to P at a gain of $1,000. Compute Si’s income on an equity basis. Discuss why you did or did not adjust S1 ’s investment in S2’s account for the unrealized gain.

AppendixLO1