Assume that Major owns 25% of Minor, and uses the equity method. Also assume that during the year, Major bought $1 million in products from Minor. Minor recorded gross profits of $60,000 on this sale to Major. Major still has these items in inventory at the end of the year. Which of the following statements is correct?

Majors accounting will be the same as if Minor had sold these items to third parties. No adjustment is needed to either the equity in investee income account or to the Investment in Minor account.

Major will defer its 25% share of the $60,000 gross profits until the products are eventually sold to outsiders. This will affect the reported equity in investee income account, and either the investment in Minor account, or inventory.

Major will defer all of the $60,000 gross profits until the products are eventually sold to outsiders. This will affect the reported equity in investee income account, and either the investment in Minor account, or inventory.

Major may choose any of the above options.