PRI has a 40 percent interest in NCE, a joint venture. During Year 5, NCE reported...

PRI has a 40 percent interest in NCE, a joint venture. During Year 5, NCE reported net income of $100,000 and paid a dividend of $60,000. NCE’s inventory includes goods purchased from PRI on which PRI had made a profit of $10,000. What amount of income should PRI report on its investment in NCE for Year 5 under the equity method? (Ignore income taxes.)

A. $24,000

B. $30,000

C. $36,000

D. $40,000

Expert Solution


SOLUTION:
	Calculation of Amount of income Should PRI report
	Net income of NCE		$ 100,000

	Holding % of PRI		$ 0

	Investment Revenue = $ 100,000 X 40%		$ 40,000

	Less: Adjustment of intergroup profit on inventory
	Profit on inventory in hand	$ 10,000
	Share of NCE in these profit = 40% of $ 10,000	$ 4,000
	Adjustment in Holding profit of NCE		$ 4,000

	Net Reportable profit of PRI		$ 36,000


	Answer = Option C = $ 36,000

ekkarill92 answered 1 year ago

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