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 $385,000. Amortization associated with this acquisition is $17,500 per year. In 2018, Lindman earns an income of $115,500 and declares cash dividends of $38,500. Previously, in 2017, Lindman had sold inventory costing $32,800 to Matthew for $41,000. Matthew consumed all but 30 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $45,600 to Matthew for $60,000 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? Answer is complete but not entirely correct. a. $ Equity income Investment in Lindman account 615X 1,728 X b.

Answer 1

Answers The amount or equity method income wokeld matthew recognize @ in dols m's share in the reported income = $115,500X30) = $34,650 Gross profit= selling price of inventory sold by 2 tom. in 2017 - Lost of inventory sold by 2 to M 2017 = $41,000 – $ 32,800 = $8,200 unrealized gross profit in 2017 = $ 8.200 30'). -$2,460 unrcakazed indica entity gain deferred from 2017 to 8018 = $ 2,460 X 30). -$738 Arteca entity gain deferred: gross profit = 60,000 – 45,600 = $14400 unxcaliad gross profit = $14400x40%. $5,760

unrealised intra Entity - $37608 30% Jis buvo recognized by Min 2018 = $34,650+738 - 17,500-1728 aquerayin O o - $ 16,160 The investment in Lindman 31121187 investment in L 31/12/18 = investment in Lindmani tfi18 + Equity income on J 2018 - dividend raccorced from lindiman. = $385,000 + $169160 - ($32,500 X 304.) --$385,000 + $16,160 – $11,550 = $389,610 Equity income-_- Lk. Linvestment in lindman account I $16,460 $389,610