Matthew owns 30 percent of the outstanding stock of Lindman and has the ability
ID: 2483556 • Letter: M
Question
Matthew owns 30 percent of the outstanding stock of Lindman and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2015, the balance in the Investment in Lindman account is $341,000. Amortization associated with this acquisition is $17,400 per year. In 2015, Lindman earns an income of $159,000 and declares cash dividends of $53,000. Previously, in 2014, Lindman had sold inventory costing $47,200 to Matthew for $59,000. Matthew consumed all but 25 percent of this merchandise during 2014 and used the rest during 2015. Lindman sold additional inventory costing $60,800 to Matthew for $80,000 in 2015. Matthew did not consume 40 percent of these 2015 purchases from Lindman until 2016. a. What amount of equity method income would Matthew recognize in 2015 from its ownership interest in Lindman?b. What is the equity method balance in the Investment in Lindman account at the end of 2015?
Explanation / Answer
1.
The calculation of equity income to be recognized by Mathew in the year 2015 is as under:
2. The calculation of equity method balance of Investment in Lindman at the end of 2015 is as under:
The calculation of equity income to be recognized by Mathew in the year 2015 is as under:
Equity income accrual during the year 2015 ($159,000*30%) $ 47,700 Less: Amortization expense $ (17,400) Intercompany gain recorgnized in 2014 $ 885 Intercompany gain recorgnized in 2015 $ 6,111 Deferred gross profit from 2015 to 2016 ($2,304) Equity income recognized by Mathew in the year 2015 $ 34,992