Russell owns 30 percent of the outstanding stock of Thacker and has the ability-to significantly influence the investee’s operations and decision making. On January 1, 2013, the balance in the Investment in Thacker account is $335,000. Amortization associated with this acquisition is $9,000 per year. In 2013, Thacker earns an income of $90,000 and pays cash dividends of $30,000. Previously, in 2012, Thacker had sold inventory costing $24,000 to Ru’ssell for $40,000. Russell consumed all but 25 percent of this merchandise during 2012 and used the rest during 2013. Thacker sold additional inventory costing $28,000 to Russell for $50,000 in 2013. Russell did not consume 40 percent of these 2013 purchases from Thacker until 2014.
a. What amount of equity method income would Russell recognize in 2013 from its ownership interest in Thacker?
b. What is the equity method balance in the Investment in Thacker account at the end of 2013?
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