Question
In: Accounting
Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability...
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, 2021, the balance in the Investment in Lindman account is $341,000. Amortization associated with this acquisition is $17,400 per year. In 2021, Lindman earns an income of $159,000 and declares cash dividends of $53,000. Previously, in 2020, Lindman had sold inventory costing $47,200 to Matthew for $59,000. Matthew consumed all but 25 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $60,800 to Matthew for $80,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022.
-
What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman?
-
What is the equity method balance in the Investment in Lindman account at the end of 2021?
Solutions
Expert Solution
Answer:
| Part 1: Computation the amount of equity method income that M will recognise in 2021 from its ownership interest in L in the following manner:- | |
| M's share in L's reported income ($159,000*30%) | $47,700 |
| Add:Intra entity gain recognized on 2020 transfer | $885 |
| Less: Amortization associated with acquisition | ($17,400) |
| Less:Intra--entity gain deferred on 2021 transfer | ($2,304) |
| Equity income recognized by M in 2021 | $28,881 |
| In 2021, M will recognised $18,594 of equity method income from its ownership interest in L. | |
| Working Note:- | |
| Intra- entity recognized has been computed as follows:- | |
| Selling price of inventory sold by L to M in 2020 | $59,000 |
| Less: Cost of inventory sold by L to M in 2020 | $47,200 |
| Gross Profit | $11,800 |
| Percentage of inventory not consumed by M in 2020 | 0 |
| Unrealized gross profit in 2020 ($11,800*25%) | $2,950 |
| M;s share in L's ownership | 0 |
| Unrealized intra- entity gain deferred from 2020 to 2021 ($2950*30%) | $885 |
| Intra- entity gain deferred on 2021 transfer has been computed as follows:- | |
| Selling price of inventory sold by L to M in 2021 | $80,000 |
| Less:Cost of inventory sold by L to M in 2021 | $60,800 |
| Gross Profit | $19,200 |
| Percentage of inventory not consumed by M in 2021 | 0 |
| Unrealized gross profit in 2021 ($19200*40%) | 7,680 |
| M's share in L's ownership | 0 |
| Unrealized intra -entity gain deferred from 2021 to 2022 ($7680*30%) | $2,304 |
| Part 2: | |
| The equity method balance in the investment in L account at the end of 2021 should be computed as follows: | |
| Investment in L, 1/1/2021 | $341,000 |
| Add:Equity income in 2021 | $28,881 |
| Less: Dividends received from L in 2021 ($53000*30%) | ($15,900) |
| Investment in L,12/31/2021 | $353,981 |
ekkarill92 answered 1 year agoRelated Solutions
Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...
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 $336,000.
Amortization associated with this acquisition is $17,100 per year.
In 2018, Lindman earns an income of $126,000 and declares cash
dividends of $31,500. Previously, in 2017, Lindman had sold
inventory costing $31,800 to Matthew for $53,000. Matthew consumed
all but 25...
Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...
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 $398,000.
Amortization associated with this acquisition is $17,700 per year.
In 2018, Lindman earns an income of $206,000 and declares cash
dividends of $51,500. Previously, in 2017, Lindman had sold
inventory costing $32,900 to Matthew for $47,000. Matthew consumed
all but 20...
Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...
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 $341,000.
Amortization associated with this acquisition is $17,400 per year.
In 2018, Lindman earns an income of $159,000 and declares cash
dividends of $53,000. Previously, in 2017, Lindman had sold
inventory costing $47,200 to Matthew for $59,000. Matthew consumed
all but 25...
Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...
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 $427,000.
Amortization associated with this acquisition is $9,600 per year.
In 2018, Lindman earns an income of $145,000 and declares cash
dividends of $72,500. Previously, in 2017, Lindman had sold
inventory costing $41,600 to Matthew for $52,000. Matthew consumed
all but 25...
Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...
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 $409,000.
Amortization associated with this acquisition is $11,400 per year.
In 2018, Lindman earns an income of $83,000 and declares cash
dividends of $41,500. Previously, in 2017, Lindman had sold
inventory costing $50,400 to Matthew for $72,000. Matthew consumed
all but 25...
Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making.
Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1,2018, the balance in the Investment in Ticker Co. account was $ 403,159. Amortization associated with this acquisition is $8,111 per year. During 2018, Ticker earned an income of $ 108,899 and paid cash dividends of $ 36,897. Previously in 2017, Ticker had sold inventory costing $ 28,988 to Starge for...
Bolero Company holds 70 percent of the common stock of Rivera, Inc., and 30 percent of...
Bolero Company holds 70 percent of the common stock of Rivera,
Inc., and 30 percent of this subsidiary’s convertible bonds. The
following consolidated financial statements are for 2017 and
2018:
2017
2018
Revenues
$
(965,000
)
$
(1,095,000
)
Cost of goods sold
623,000
663,000
Depreciation and amortization
113,000
146,000
Gain on sale of building
0
(43,000
)
Interest expense
53,000
53,000
Consolidated net income
(176,000
)
(276,000
)
to noncontrolling interest
32,000
34,000
to parent company
$
(144,000
)...
Bolero Company holds 80 percent of the common stock of Rivera, Inc., and 30 percent of...
Bolero Company holds 80 percent of the common stock of Rivera,
Inc., and 30 percent of this subsidiary’s convertible bonds. The
following consolidated financial statements are for 2017 and
2018:
2017
2018
Revenues
$
(875,000
)
$
(1,005,000
)
Cost of goods sold
605,000
645,000
Depreciation and
amortization
95,000
110,000
Gain on sale of building
0
(25,000
)
Interest expense
35,000
35,000
Consolidated net income
(140,000
)
(240,000
)
to noncontrolling interest
14,000
16,000
to parent company
$
(126,000
)...
Bolero Company holds 70 percent of the common stock of Rivera, Inc., and 30 percent of...
Bolero Company holds 70 percent of the common stock of Rivera,
Inc., and 30 percent of this subsidiary’s convertible bonds. The
following consolidated financial statements are for 2017 and
2018:
2017
2018
Revenues
$
(965,000
)
$
(1,095,000
)
Cost of goods sold
623,000
663,000
Depreciation and amortization
113,000
146,000
Gain on sale of building
0
(43,000
)
Interest expense
53,000
53,000
Consolidated net income
(176,000
)
(276,000
)
to noncontrolling interest
32,000
34,000
to parent company
$
(144,000
)...
Bolero Company holds 75 percent of the common stock of Rivera, Inc., and 30 percent of...
Bolero Company holds 75 percent of the common stock of Rivera,
Inc., and 30 percent of this subsidiary’s convertible bonds. The
following consolidated financial statements are for 2017 and
2018:
2017
2018
Revenues
$
(960,000
)
$
(1,090,000
)
Cost of goods sold
622,000
662,000
Depreciation and amortization
112,000
144,000
Gain on sale of building
0
(42,000
)
Interest expense
52,000
52,000
Consolidated net income
(174,000
)
(274,000
)
to noncontrolling interest
31,000
33,000
to parent company
$
(143,000
)...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Suggest journal, research paper link reference. i need this as reference for writing a research with...
- Cryptography is used heavily in internet communications. True or false? Explain
- Suppose Rialto is the only movie cinema in a small college town, so it is essentially...
- With VMI, members of the supply chain share planning, demand, forecasting, and inventory information.
- Large lots are desirable in supply chain coordination despite increasing holding costs.
- ***Convert the C++ to Python*** #include <iostream> using std::cout; using std::cin; using std::endl; int charClass; char...
- Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a...
ADVERTISEMENT