Cayman Inc. bought 30% of Maya Company on January 1, 2018 for $450,000. The equi

Question

Cayman Inc. bought 30% of Maya Company on January 1, 2018 for $450,000. The equity method of accounting was used. The book value and fair value of the net assets of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as follows:

Maya reported net income of $100,000 in 2018 and $120,000 in 2019 while paying $40,000 in dividends each year.

What is the Equity in Maya Income that should be reported by Cayman in 2019?

Cost to Maya Transfer Price Amount Held by Cayman at Year-End 2018 $ 30,000 $ 45,000 $9,000 2019 $ 48,000 $ 80,000 20,000

Explanation / Answer

solution: Equity in the Mata Income reported by Cayman in 2019 :

= ($120,000 × 30%) + 900 (i.e defferal realized from2018) - 2,400(i.e. Deffered in 2019)

= $34,500

note: Defferal from 2018 = 9,000×0.30× 30% = $900

Defferd in 2019 = 20,000×0.40 × 30% = $2,400

note: 0.30 and 0.40 are the profit ratio on transfer price of Maya in 2018 and 2019 respectively

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