Need help with where I have an X BuyCo, Inc. holds 25 percent of the outstanding

Question

Need help with where I have an X

BuyCo, Inc. holds 25 percent of the outstanding shares of Marqueen company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,700 per year. For 2017, Marqueen reported earnings of $115,000 and declares cash dividends of $30,000. During that year, Marqueen acquired inventory for $60,000, which it then sold to BuyCo for $75,000. At the end of 2017, BuyCo continued to hold merchandise with a transfer price of $28,000 a. What Equity in Investee Income should BuyCo report for 2017? b. How will the intra-entity transfer affect BuyCo's reporting in 2018? c. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed? (Do not round intermediate calculations.) Answer is complete but not entirely correct. a. Equity in investee income b. Equity accrual for 2018 will be C.change? $ 15,250 increased by No 2,800 If the inventory was sold, would your answers above

Explanation / Answer

(a) Equity in investmentee income = $ 16,650 (b) Equity accruals for 2018 will be = $   1,400 Workings: Computation of Equity accruals for 2018: Remaining inventory end of the year = $ 28,000 Gross profit percentage ($75,000 - $60,000 / $75,000) = 20% Profit within remaining inventory = $   5,600 Ownership percentage = 25% Defferal of interentity gross profit = $   1,400 Computation of Equity in investmentee income: Equity income accruals ($1,15,000 X 25%) = $ 28,750 Less: Defferal of interentity gross profit = $   1,400 Less: Patent amortization (given) = $ 10,700 Equity in investmentee income = $ 16,650

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