BuyCo, Inc. holds 25 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 $10,000 per year. For 2017, Marqueen reported earnings of $100,000 and declares cash dividends of $30,000. During that year, Marqueen acquired inventory for $50,000, which it then sold to BuyCo for $80,000. 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?c. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed?
BuyCo, Inc. holds 25 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 $10,000 per year. For 2017, Marqueen reported earnings of $100,000 and declares cash dividends of $30,000. During that year, Marqueen acquired inventory
for $50,000, which it then sold to BuyCo for $80,000. 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?
c. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed?
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