Show your steps: Matthew, Inc. owns 30 percent of the outstanding stock of Lindm

Question

Show your steps:

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 $393,000. Amortization associated with this acquisition is $9,900 per year. In 2018, Lindman earns an income of $172,000 and declares cash dividends of $43,000. Previously, in 2017, Lindman had sold inventory costing $44,400 to Matthew for $74,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $50,400 to Matthew for $90,000 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? a. Equity income Investment in Lindman account

Explanation / Answer

Hi ,

According to IAS 28 Investment in Associate and Joint Venture , signifluent influence should be recorded in single line accounting or equity method.

a)

Equity income 41,700

---------------

workings ;

1) Lidmans comapny earned a total income of $172,000 for 2018 , so mathew co entitled to 30 % of it

(172,000 * 30%)

2) Both sale transaction Lindman ( parent ) is the seller , In case of sale during 2017 all profit is unrealised , so there is no adjustments.

in case of sale during 2018 , parent is the seller

Unrealise profit = $(90,000- 50,400) * 40% unused

= $15,840

NOTE ; if in case of parent is the seller unrealised profit is deducted from investment inladmin account,

and only if associate is the seller then we deduct unrealise profit from equity income.

b)   

----------------

Investment in Lindman Account - 405,960

---------------

Working

W3 - Total divident paid is 43,000, this will be for all sahreholders ,

so Matthew co share will be $12,900 [ $43,000* 30*]

Equity Income $ Mathew share of profit   - 51,600 [w1] LESS Current year impairment - -9,900 Unrealise profit - 0 [w2] --------------

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.