BuyCo, Inc. holds 22 percent of the outstanding shares ofMarqueen company and appropriately applies the equity method ofaccounting. Excess cost amortization (related to a patent)associated with this investment amounts to $11,700 per year. For2017, Marqueen reported earnings of $116,000 and declares cashdividends of $34,000. During that year, Marqueen acquired inventoryfor $45,000, which it then sold to BuyCo for $90,000. At the end of2017, BuyCo continued to hold merchandise with a transfer price of$26,000.
What Equity in Investee Income should BuyCo report for 2017?
How will the intra-entity transfer affect BuyCo's reporting in2018?
If BuyCo had sold the inventory to Marqueen, how would theanswers to (a) and (b) have changed?
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| | | | | | | a. | Equity in investee income | | | | | b. | Equity accrual for 2018 will be | | Yes or No | Â Â | | c. | If the inventory was sold,would your answers above change? | | Yes or No |
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