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13 November, 17:09

An investor company owns 30% of the common stock of an investee company. The investor has significant influence over the investee. During the year ended December 31, 2019, the investee bought $100,000 of inventory from the investor. The investor includes gross profit of 40% on all inventory sales transactions. At December 31, 2019, the investee held $200,000 of total inventory, with $20,000 of this inventory purchased from the investor during 2019. For the year ended December 31, 2019, the investor and investee reported $90,000 and $40,000, respectively, of net income. What amount of investment income from the investee did the investor recognize during the year ended December 31, 2019? Select one: a. $14,400 b. $9,600 c. $8,000 d. $12,000

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  1. 13 November, 18:21
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    Correct Answer is B.

    $9600

    Explanation:

    Net income from investment equity = $40000*30% = $12000

    Less: Un-realized gain on interco inventory = ($20000*40%) * 30% = $2400

    Investment income from investee = $12000-$2400 = $9600
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