Jager Inc. holds 30% of the outstanding voting shares of Kinson Co. and appropriately applies the equity method of accounting. Amortization associated with this investment equals $11,000 per year. For 2018, Kinson reported earnings of $100,000 and paid cash dividends of $40,000. During 2018, Kinson acquired inventory for $62,400, which was then sold to Jager for $96,000. At the end of 2018, Jager still held some of this inventory at its intra-entity selling price of $50,000.Required:Determine the amount of Equity in Investee Income that Jager should have reported for 2018.

What will be an ideal response?



Equity in investee income:   
Equity income accrual ($100,000 × 30%)$30,000 
Deferral of share of intra-entity gross profit (below) (5,250)
Amortization (given) (11,000)
Equity in investee income$13,750 

?
Deferral of its share of intra-entity gross profit:   
Remaining inventory - end of year$50,000 
Gross profit percentage ($33,600 ÷ $96,000)×35%
Profit within remaining inventory$17,500 
Ownership percentage×30%
Share of intra-entity gross profit$5,250 


Business

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