BuyCo, Inc., holds 28 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 $12,000 per year. For 2020, Marqueen reported earnings of $119,000 and declares cash dividends of $34,000. During that year, Marqueen acquired inventory for $60,000, which it then sold to BuyCo for $75,000. At the end of 2020, BuyCo continued to hold merchandise with a transfer price of $27,000. What Equity in Investee Income should BuyCo report for 2020?How will the intra-entity transfer affect BuyCo’s reporting in 2021?If BuyCo had sold the inventory to Marqueen, would the answers to (a) and (b) have changed?Equity in investee income$19,052selected answer incorrect b.Equity accrual for 2021 will beincreasedselected answer correctby$2,117selected answer incorrectc.If BuyCo had sold the inventory to Marqueen, would your answers above change?No

The equity method is the one that is applied when a company has 20% to 50% of stock ownership…

Answered: BuyCo, Inc., holds 28 percent of the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

BuyCo, Inc., holds 28 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 $12,000 per year. For 2020, Marqueen reported earnings of $119,000 and declares cash dividends of $34,000. During that year, Marqueen acquired inventory for $60,000, which it then sold to BuyCo for $75,000. At the end of 2020, BuyCo continued to hold merchandise with a transfer price of $27,000.

What Equity in Investee Income should BuyCo report for 2020?
How will the intra-entity transfer affect BuyCo’s reporting in 2021?
If BuyCo had sold the inventory to Marqueen, would the answers to (a) and (b) have changed?

Equity in investee income	$19,052selected answer incorrect
b.	Equity accrual for 2021 will be	increasedselected answer correct	by	$2,117selected answer incorrect
c.	If BuyCo had sold the inventory to Marqueen, would your answers above change?	No