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 $10,800 per year. For 2020, Marqueen reported earnings of $102,000 and declares cash dividends of $30,000. During that year, Marqueen acquired inventory for $54,000, which it then sold to BuyCo for $75,000. At the end of 2020, BuyCo continued to hold merchandise with a transfer price of $29,000. 1. What Equity in Investee Income should BuyCo report for 2017?
2. How will the intra-entity transfer affect BuyCo's reporting in 2018?
3. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed?

Answer and Explanation:

The computation is shown below:

a. The equity in investee income for the year 2017 is

Equity income Accrual ($102,000 × 25%) $25500

Less: Deferral of Infra-entity gross profit  ($2,030)

Less: Amortization of patent($10,800)

Equity in investee income $12,670

Working Note:

For Deferral of intraentity gross profit :-

Ending Balance of Inventory  $29,000

Gross Profit Percentage (($75,000 - $54,000) ÷ $75,000) 28%

Profit within Remaining Inventory $8,120

Ownership Percentage25%

Intraentity gross Profit Deferral $2,030

b. The intra-entity impact for the year 2018 is that yhe accrual equity would be increased by $2,030

c. In the case when the inventory is sold from BuyCo to Marqueen so the direction i.e. upstream or downstream would remain unaffected the above answers

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough

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