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10 March, 08:16

Lewis Inc. owns 40% of Morgan and applies the equity method. During the current year, Lewis buys inventory costing $400,000 and sells it to Morgan for $700,000. At the end of the year, Morgan still holds $140,000 of this merchandise. What amount of unrealized gross profit must Lewis defer in reporting this investment using the equity method?

A. $24,000

B. $56,000

C. $60,000

D. $140,000

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Answers (1)
  1. 10 March, 12:08
    0
    The correct answer is a) $24,000

    Explanation:

    At the end of the year, Morgan still holds $140,000 of this merchandise

    Lewis Inc. owns 40% of Morgan and applies the equity method

    40% = 0.4

    $140,000 x 40% = $56,000

    Lewis buys inventory costing $400,000 and sells it to Morgan for $700,000.

    $700,000 - $400,000 = $300,000

    =$56,000 x ($300,000 : $700,000)

    =$56,000 x 0,428571429

    = $24,000
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Home » Business » Lewis Inc. owns 40% of Morgan and applies the equity method. During the current year, Lewis buys inventory costing $400,000 and sells it to Morgan for $700,000. At the end of the year, Morgan still holds $140,000 of this merchandise.
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