Question

Equity method journal entries with intercompany sales of inventory An investor owns 25% of an investee, and accounts for its investment using the equity method. At the beginning of the year, the Equity Investment was reported on the investor's balance sheet at $2,000,000. During the year, the investee reported net income of $800,000 and paid dividends of $200,000. In addition, the investor sold inventory to the investee, realizing a gross profit of $240,000 on the sale. At the end of the year, 30% of the inventory remained unsold by the investee. a. Provide the equity method journal entries required for the year Description Debit Credit Equity investment 200,000 0 Equity income o 200,000 To record the recognition of equity income. Equity income 18,000 0 Equity investment or 18,000 To record deferred profits in ending inventory. Cash 50,000 O Equity investment 0 50,000 V To record receipt of dividends. b. What is the balance of the Equity Investment at the end of the year? $ 500,000

How do I calculate part B in this problem ?

Answer 1

Answer-b:

Equity investment at the beginning Add: Share in net income of investee Less: Share in dividend Less: Deferred profit in inventory Equity investment at the ending $ 2,000,000 200,000 (50,000) (18,000) $ 2,132,000