Hager holds 30 percent of the outstanding shares of Jenkins and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $9,000 per year. For 2008, Jenkins reported earnings of $80,000 and pays cash dividends of $30,000. During that year, Jenkins acquired inventory for $50,000, which it then sold to Hager for $80,000. At the end of 2008, Hager continued to hold merchandise with a transfer price of $40,000.

a. What Equity in Investee Income should Hager report for 2008?

b. How will the intercompany transfer affect Hager’s reporting in 2009?

c. If Hager had sold the inventory to Jenkins, how would the answers to

(a) and

(b) have changed?