How will the intra-entity transfer affect BuyCo reporting

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Question - BuyCo, Inc. holds 21 percent of the outstanding shares of Marqueen company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,000 per year. For 2017, Marqueen reported earnings of $108,000 and declares cash dividends of $32,000. During that year, Marqueen acquired inventory for $49,000, which it then sold to BuyCo for $70,000. At the end of 2017, BuyCo continued to hold merchandise with a transfer price of $27,000.

Required -

1. What Equity in Investee Income should BuyCo report for 2017?

2. How will the intra-entity transfer affect BuyCo's reporting in 2018?

3. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed?

Reference no: EM132686819

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