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20 October, 08:16

1. Monroe Company owns 40% of the voting stock of Nartal Industries, acquired at book value. Nartal reports income of $600,000 for 2020. Nartal regularly sells merchandise to Monroe at a markup of 30% on cost. Monroe's 2020 beginning inventory includes $156,000 purchased from Nartal. Its 2020 ending inventory includes $260,000 purchased from Nartal. Monroe uses the equity method to report its investment in Nartal. Equity in net income of Nartal for 2020 is: A. $230,400 B. $264,000 C. $249,600 D. $216,000

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  1. 20 October, 10:15
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    A. $230,400

    Explanation:

    600,000 x 40% = 240,000

    260,000 - 156,000 = 104,000 transfers of goods intra-entity at sale price

    we divide by the markup to know the cost:

    104,000 / 1.3 = 80,000 cost of the goods

    gross margin 104,000 - 80,000 = 24,000

    we will eliminate 40% of the gross margin

    24,000 x 40% = 9,600

    This amount will be eliminate from the incoem statemnet:

    240,000 - 9,600 = 230,400
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Home » Business » 1. Monroe Company owns 40% of the voting stock of Nartal Industries, acquired at book value. Nartal reports income of $600,000 for 2020. Nartal regularly sells merchandise to Monroe at a markup of 30% on cost.
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