Help Save & Exit Submit Matthew Inc. owns 30 percent of the outstanding stock of

Question

Help Save & Exit Submit Matthew Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee's operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $335,000 associated with this acquisition is $9,000 per year. In 2018, Lindman earns an income of $90,000 and declares cash of $30,000. Previously, in 2017, Lindman had sold inventory costing $24,000 to M atthew for $40,000. Matthew consumed all during 2018. Lindman sold additional inventory costing $28,000 to but 25 percent of this merchandise during 2017 and used the rest Matthew for $50,000 in 2018. Matthew did not con sume 40 percent of these 2018 purchases from Lindman until 2019. a. What amount of b. What is the equity e would Matthew recognize in 2018 method balance in the Investment in Lindman account at the end of 2018? in 3of4": Nee, >

Explanation / Answer

First we will calculate the unrealized profit in unsold inventory 2017 Sale price $40,000 Cost $24,000 Gross profit $16,000 Gross margin 40% Unsold inventory for 2017 (40000 x 75%) $30,000 Unrealized profit in unsold inventory (30000 x 40%) $12,000 2018 Sale price $50,000 Cost $28,000 Gross profit $22,000 Gross margin 44% Unsold inventory for 2017 (50000x40%) $20,000 Unrealized profit in unsold inventory (20000 x 44%) $8,800 a Amount of equity method income would Mathew recognize in 2018 Net income of Lindman $90,000 Less: Amortization $9,000 Unrealized profit in unsold inventory (2018) $8,800 Add: Unrealized profit in unsold inventory (2017) realized in 2018 $12,000 Net income after adjustment $84,200 Metthew's share of income (30%) $25,260 b Equity method balance in the investment in Lindman account at the end of 2018 Balance in investment in Lindman account, 1/1/2018 $335,000 Add: Equity income for 2018 $25,260 Less: Dividend income (30000 x 30%) $9,000 Balance in investment in Lindman account, 12/31/2018 $351,260

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