Question
Acker Inc. bought 40% of Howell Co. on January 1, 2010 for $576,000. The equity method of accounting was used. The book value and fair
Acker Inc. bought 40% of Howell Co. on January 1, 2010 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows:
YEAR/ COST TO ACKER/ TRANSFER PRICE/ AMOUNT HELD BY HOWELL AT YEAR-END:
2010/ $55,000/ $75,000/ $15,000
2011/ $70,000/ $110,000/ $55,000
Howell reported net income of $100,000 in 2010 and $120,000 in 2011 while paying $40,000 in dividends each year.
QUESTIONS & ANSWER. PLEASE EXPLAIN AND SHOW WORK. ALL ANSWERS ARE CORRECT SO PLEASE DONT STATE OTHERWISE. THANK YOU.
What is the amount of unrealized intra-entity inventory profit to be deferred on December 31, 2010?
ANSWER: $1,600
What is the Equity in Howell Income that should be reported by Acker in 2010?
ANSWER: 38,400
What is the balance in Acker's Investment in Howell account at December 31, 2010?
ANSWER: 598,400
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