Question
Big owns 30% of the outstanding voting common stock of Little and has the ability to significantly influence the investee's operations and decision making. On
Big owns 30% of the outstanding voting common stock of Little and has the ability to significantly influence the investee's operations and decision making. On January 1, 20X1, the balance in the Investment in Little Co. account was $402,000. There is no amortization associated with the purchase of this investment. During 20X1, Little earned income of $108,000 and paid cash dividends of $36,000. Previously in 20X0, Little had sold inventory costing $28,800 to Big for $48,000. All but 25% of this merchandise was consumed by Big during 20X0. The remainder was used during 20X1. Additional sales were made to Big in 20X1; inventory costing $33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until 20X2. What amount of equity income would Big have recognized in 20X1 from its ownership interest in Little? What is the correct balance in the Investment in Little account on December 31, 20X1?
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