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, 2018, the balance in the Investment in Lindman account is $353,000. Amortization associated with this acquisition is $15,900 per year. In 2018, Lindman earns an income of $213,000 and declares cash dividends of $71,000. Previously, in 2017, Lindman had sold inventory costing $49,000 to Matthew for $70,000. Matthew consumed all but 20 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $56,100 to Matthew for $85,000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019.
a. What amount of equity method income would Matthew recognize in 2018 from its ownership interest in Lindman?
b. What is the equity method balance in the Investment in Lindman account at the end of 2018?
Expert Answer
a.In 2018 Incom=$213000
dividend=$(71000)
$142000
#unrealised profit$(11560)
profit $130440 #unrealised profits=$(56100-85000)=28900*40%=$11560
share in profits 130440*30%=39132
share of dividend $71000*30%=21300
B, 1JAN 2018 INVESTMENT=$353000
AMORTISATION PER YEAR=$15900
INVESTMENT VALUE 2018 END=$337100