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BuyCo, Inc. holds 24 percent of the outstanding shares of Marqueen company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $11,200 per year For 2017, Marqueen reported earnings of $112,000 and declares cash dividends of $34,000. During that year, Marqueen acquired inventory for $54,000, which it then sold to BuyCo for $90,000. At the end of 2017, BuyCo continued to hold merchandise with a transfer price of $37.000 a. What Equity in Investee Income should BuyCo report for 2017? b. How will the intra-entity transfer affect BuyCos reporting in 2018? c. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed? (Do not round intermediate calculations.)

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Reporting of Equity Income And Transfer A Equity is Investee Income Particulars Equity Income Accural Less: Deferral of Intra-Intity Unrealized gross Profit (Below) Amotization of patent Equity in Investee Income Amounts 26,880-112000 x 24% $ $ (11,200) $ 12,325 (3,355 Deferral of Intra-Intity Unrealized gross Profit Remaina Inventry End of vear Gross Profit Percentage Profit Within Remaining Inventor Ownership Percent Intra-Intity Unrealized gross Profit 37,000 3 7.78%-34000/90000 13,978-37000 x 37.78% 24% 3,355-13978 x 24% The Deferal Of $3355 Will likely Become Realize in 2018 Due to Company Bs Use Or Sale of Inventorty. Thus The Equity Accrual for 2018 Bill be increased By $3355. The Recogniton of The Amount of $3355 is Simply Delayed From 2017 to 2018 Because This Amount Will be Earned in 2018 B C The Avove Answers Woul Not Be Affected by The Direction (Upstream or Downsream) of Intra-Entity Transfe. A Controling interest Calls For a 100% Gross Profit Deferal For Downstream Intra-Entity Transfers. However The Equity Method Accounting is Identical in The Presence of Only Signification Influence Regardless of Whether an Intra-Entity Transfer is Upstream And Downstrearm

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