Question

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 $336,000. Amortization associated with this acquisition is $17,100 per year. In 2018, Lindman earns an income of $126,000 and declares cash dividends of $31,500. Previously, in 2017, Lindman had sold inventory costing $31,800 to Matthew for $53,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $39,200 to Matthew for $70,000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019. a. 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? Equity income Investment in Lindman account

Answer 1

Leas Intra Answer! a) Calculate the amount of equity method would Matthew (M) recognize in 2018 from its ownership interest in Lindmank). particulars | Amount Matthew share in Lindman's reported income $37,800 [$126.000 x 30%) Add - Intoa entily gain receanised on 2017 transfer $ 1,590 Less' Amortization associated with acquisilion $ 17,100) Intra entily gain deferred on 2018 transfer 3,696) $18.594 Equity income recognized by oy in 2018. .. In 2018, M will recognized $18,594 of equity methool income from its ownership interest in L. worleing notes o calculation of Inlva entity recognised on 2017 transferia Amount particulars Selling price of inventory sold by L tom in 2017 $53,000 Less! cost of inventory sold by 2 to M in 2017 $31,800 - Gross profit percentage of invenlory not consumed by Min 2017 $0 un realized gross profit in 2017 (21,200x257 $5,300 M's share in his ownership un realized intra entity gain recognized from 20174014 $1,590 253,000x30%7 $21,200 so

ii) Intra- entily gain deferred _particulars . selling price of inventory sold by to M in 2018 Less cost of inventory sold by atom in 2018 - Gross profil percentage of invenlory not consumed by Hiu 2018 unrealized gross profitin 2018 430,800 x 407 Amount $70,000 $ 39200 $30,800 $0 $12320 - My share in 2's ownership mloa entily gainde ferred from lok-19 $3,696 Amound unrealised intoa entity gaindefervede $12,320X30%? b) calculation of the equeily method balance in the investment in Laccount at the end of 2018, particulars Investment in his account 1/1/2018 $336000 Add. Equity income in 2018 $ 18,594 Lees! Dividends received from Lin2018 K$9450) $ 31,500 x 3072 Investment in L, 12/31/2018_ $345,144 .. The equila method balance in the investment in L'ś accout at the end of 2018 is & 345,144...