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Smith Company holds 20% of the outstanding shares of Leef Greeting Cards and applies the equity...

Smith Company holds 20% of the outstanding shares of Leef Greeting Cards and applies the equity method of accounting. For the current year, Leef reports earnings of $100,000 and pays cash dividends of $22,000. During the current year, Leef acquired inventory for $60,000, which was then sold to Smith for $100,000. At the end of the current year, Smith continues to hold merchandise with a transfer price of $30,000. Assuming no amortization expense related to this investment, what Equity in Investee Income should Smith report in the current year?

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Answer #1

Gross profit Of leaf = (100000-60000)/100000 40% Closing inventory of Smith = $ 30,000.00 Markup in closing inventory = 30000

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