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1 June, 08:15

Investor owns 30% of Investee and applies the equity method. In 2020, Investor sells merchandise costing $240,000 to Investee for $300,000. Investee's ending inventory includes $50,000 purchased from Investor.

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  1. 1 June, 11:26
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    We should eliminate 3,000 revenue for this sale as is considered intra-entity therefore, there is no gain realized.

    Explanation:

    The transactions intra-entity should be eliminated.

    We should eliminate the revenue from the goods that are still in the inventory of the investee.

    inventory sold: 300,000

    remaining inventory: 50,000

    remaining goods 50,000/300,000 = 1/6

    Then, total revenue: 300,000 - 240,000 = 60,000

    1/6 of this revenue is still in the investee 60,000 x 1/6 = 10,000

    then we should eliminate the percentage of ownership we got on the investee

    30% of this belong to the investor so it should be eliminated while the other 70% is kept.

    10,000 x 30% = 3,000
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