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 $398,000. Amortization associated with this acquisition is $17,700 per year. In 2021, Lindman earns an income of $206,000 and declares cash dividends of $51,500. Previously, in 2020, Lindman had sold inventory costing $32,900 to Matthew for $47,000. Matthew consumed all but 20 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $46,200 to Matthew for $70,000 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?
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 $398,000. Amortization associated with this acquisition is $17,700 per year. In 2021, Lindman earns an income of $206,000 and declares cash dividends of $51,500. Previously, in 2020, Lindman had sold inventory costing $32,900 to Matthew for $47,000. Matthew consumed all but 20 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $46,200 to Matthew for $70,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022.
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What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman?
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What is the equity method balance in the Investment in Lindman account at the end of 2021?
(A) amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman
| equity income accrual | |
| (206000*.3) | 61800 |
| amortisation | (17700) |
| intra entity profit recognised in 2020 | 846 |
| (47000*.20*.30*.3 ) | |
| intra entity profit deffered in 2021 | (2856) |
| (70000*.4*.34*.3) | |
| 2021 equity income | 42090 |
gross profit rate = 23800/70000 = 34%
(B) equity method balance in the Investment in Lindman account at the end of 2021
| INVESTMENT | 398000 |
| equity income | 42090 |
| dividend | |
| (51500*.3) | (15450) |
| investment at end of 2021 | 424640 |
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