a. What amount of equity method income would Matthew recognize in 2024 from its ownership interest in Lindman?
a. What amount of equity method income would Matthew recognize in 2024 from its ownership interest in Lindman?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 25E
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Question
![Matthew, Incorporated owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the
investee's operation and decision making. On January 1, 2024, the balance in the Investment in Lindman account is $409,000.
Amortization associated with this acquisition is $11,400 per year. In 2024, Lindman earns an income of $83,000 and declares cash
dividends of $41,500. Previously, in 2023, Lindman had sold inventory costing $50,400 to Matthew for $72,000. Matthew consumed all
but 25 percent of this merchandise during 2023 and used the rest during 2024. Lindman sold additional inventory costing $59,400 to
Matthew for $90,000 in 2024. Matthew did not consume 40 percent of these 2024 purchases from Lindman until 2025.
Matthew Incorporated ownership in Lindman
Matthew Investment in Lindman
Amortization
Lindman 2024 Income
Lindman 2024 Dividends
Lindman Inventory Sales to Matthew
2023 Inventory Sale
2024 Inventory Sale
Gross Profit Calculations
Sales
Cost
Gross Profit
Gross Profit Percentage
30%
409,000
11,400
83,000
41,500
Equity Income Calculation 2024
Matthew's share of Lindman's reported net income
Amortization
Intra-entity profit recognized on 2023 transfer
Intra-entity profit deferred on 2024 transfer
Equity income recognized by Matthew in 2024
Sale
Required:
question. Formulas for any items to be subtracted must return negative
values.
72,000
90,000
Investment in Lindman, 1/1/24
Equity income - 2024
Dividends - 2024
Investment in Lindman, 12/31/24
a. What amount of equity method income would Matthew recognize in 2024 from
its ownership interest in Lindman?
Cost
2023
50,400
59,400
2024
Inventory Held at
End of Year
b. What is the equity method balance in the Investment in Lindman account at the end of 2024?
25%
40%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6625962a-eba0-4f5a-904a-e60e4fff5fe8%2F3683e686-4aeb-48df-9b60-ca27f9c81fff%2F49lkndv_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Matthew, Incorporated owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the
investee's operation and decision making. On January 1, 2024, the balance in the Investment in Lindman account is $409,000.
Amortization associated with this acquisition is $11,400 per year. In 2024, Lindman earns an income of $83,000 and declares cash
dividends of $41,500. Previously, in 2023, Lindman had sold inventory costing $50,400 to Matthew for $72,000. Matthew consumed all
but 25 percent of this merchandise during 2023 and used the rest during 2024. Lindman sold additional inventory costing $59,400 to
Matthew for $90,000 in 2024. Matthew did not consume 40 percent of these 2024 purchases from Lindman until 2025.
Matthew Incorporated ownership in Lindman
Matthew Investment in Lindman
Amortization
Lindman 2024 Income
Lindman 2024 Dividends
Lindman Inventory Sales to Matthew
2023 Inventory Sale
2024 Inventory Sale
Gross Profit Calculations
Sales
Cost
Gross Profit
Gross Profit Percentage
30%
409,000
11,400
83,000
41,500
Equity Income Calculation 2024
Matthew's share of Lindman's reported net income
Amortization
Intra-entity profit recognized on 2023 transfer
Intra-entity profit deferred on 2024 transfer
Equity income recognized by Matthew in 2024
Sale
Required:
question. Formulas for any items to be subtracted must return negative
values.
72,000
90,000
Investment in Lindman, 1/1/24
Equity income - 2024
Dividends - 2024
Investment in Lindman, 12/31/24
a. What amount of equity method income would Matthew recognize in 2024 from
its ownership interest in Lindman?
Cost
2023
50,400
59,400
2024
Inventory Held at
End of Year
b. What is the equity method balance in the Investment in Lindman account at the end of 2024?
25%
40%
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Step 1: Definition of equity method:
VIEWStep 2: Working note- Calculation of gross profit percentages on the inventory sold:
VIEWStep 3: Requirement a- The amount of equity income to be recognized in 2024:
VIEWStep 4: Requirement b- Calculation of balance of investment at the end of 2024:
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