Investor owns 40% of Investee and applies the equity method. In 2012, Investee sells merchandise costing $50,000 to Investor for $70,000. Investor's ending inventory includes $30,000 purchased from investee. What amount of unrealized gross must be deferred in the equity method entry?
Unrealized profits refers to the potentials gains in an investment or an asset that has not been sold. Essentially, the gains are realized assets is disposed at a profit.
Answer and Explanation:
Unrealized gross is 3,428.57
The formula for unrealized gross = ending inventory x gross percentage x ownership percentage
Ending inventory = 30.000
Unrealized gross = 30,000 x (70,000 - 50,000) / 70000) x 40% = 3,428.57
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from Financial Accounting: Homework Help ResourceChapter 6 / Lesson 22