Question

Problem 1-25 (LO 1-3, 1-4, 1-6) 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 $393.000. Amortization associated with this acquisition is $9.900 per year. In 2018. Lindman earns an income of $172,000 and declares cash dividends of $43,000. Previously, in 2017, Lindman had sold inventory costing $44,400 to Matthew for $74,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $50.400 to Matthew for $90.000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019 Q. What amount of equity method income would Matthew recognize in 2018 from its ownership interest in Lindman? b. What is the equity method balance in the Investment in Lindman account at the end of 2018?

Answer 1

Pooblem 1-25 CLO 1-3,1-4,1-6) a. Given that matthew has significant influence we can reasonably assume to use the cacity method good to stale obvious. Sometimes) The poo pootfonole Shade of mattheas miestoneer Yn 2018 PS: -> shadey. x (net income-acquisition amoo tization - upstoeam parpts+- downstream profts) =) 30% (172000 - 9900 + No opstoecim fam 2017 as It was sold by end of 2018 Creed to Check) + C 407C 90000 - 50,000)) + no downstream poft's => 30%. C162,100+169,840) => 307. CAD,qu0) => $53,382 b. Eaceity balance 95 - Cost o povestment proportionate shade of Prestmal – Dividends =) $ 393.000 + $ 53,382-$4300 -) + HO3, 382