Asked by Carley Lambeth on Jun 07, 2024
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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 2021, Kinson reported earnings of $100,000 and paid cash dividends of $40,000. During 2021, Kinson acquired inventory for $62,400, which was then sold to Jager for $96,000. At the end of 2021, 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 2021.
Equity Method
An accounting technique used by firms to assess the profits earned by their investments in other companies, incorporating the income on the investor's income statement.
Amortization
The approach of progressively depreciating the initial investment in an intangible asset over its effective life.
Inventory
The total quantity of goods and materials a business holds for the purpose of resale or production.
- Compute and reconcile the equity component in investee earnings.
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EO
Learning Objectives
- Compute and reconcile the equity component in investee earnings.