Question

Problem 1-20 (L0 1-3, 1-4, 1-6) 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 $11.400 per year. For 2017, Marqueen reported earnings of $114,000 and declares cash dividends of $33,000. During that year, Marqueen acquired inventory for $56,000, which it then sold to BuyCo for $70,000. At the end of 2017, BuyCo continued to hold merchandise with a transfer price of $32,000 a. What Equity in Investee Income should BuyCo report for 2017? b. How will the intra-entity transfer affect BuyCo's reporting in 2018? If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed? C. (Do not round intermediate calculations.) a. Equity in investee income b. Equity accrual for 2018 will be If the inventory was sold, would your answers above change? increased No by C.

Answer 1

27 a) What Equity in Investee Income should BuyCo report for 2017? 28 Calculation of Intra - Entity unrealized Gross Profit 29 30 Remaining inventory at end of the Year (A) Gross Profit Percentage (70000-56000)/70000 ( B) Profit with remaining inventory (A *B) 31 32000 20% 32 33 6400 Ownership Percentage 24% 34 Intra - Entity unrealized Gross Profit 35 1536 36 Equity Income Accrual (114000*24%) 37 27360 Less Deferral of Intra Entity unrealized Gross Profit 38 -1536 -11400 39 Patent Amortization Equity in Investee Income 40 14424 41 42 b. How will the intra-entity transfer affect BuyCo?s reporting in 2018? 43 In 2018, the deferral of %1536 will probably become realized by selling this inventry. Therefore, the Equity accrual for 2018 will be increased by $1536. 44 45 46 Equity accrual for 2018 will be increased by $ 1536. 47 48 49 c) If the inventory was sold, would your answers above changed? 50 No 51