Investor owns 40% of Investee and applies the equity method. In 2012, Investee sells merchandise...

Question:

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 Gross:

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

Calculation:

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


Learn more about this topic:

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What is Gross Price? - Definition & Formula

from Financial Accounting: Homework Help Resource

Chapter 6 / Lesson 22
20K

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