Question
Diehl Company owns 40% of the outstanding voting common stock of Rubins Corp. and has the ability to significantly influence the investee's operations. On January
Diehl Company owns 40% of the outstanding voting common stock of Rubins Corp. and has the ability to significantly influence the investee's operations. On January 3, 20X1, the balance in the Investment in Rubins Corp. account was $660,000. Amortization associated with this acquisition is $15,000 per year. During 20X1, Rubins earned a net income of $150,000 and paid cash dividends of $30,000. Previously in 20X0, Rubins had sold inventory costing $42,000 to Diehl for $60,000. All but 30% of that inventory had been sold to outsiders by Diehl during 20X0. Additional sales were made to Diehl in 20X1 at a transfer price of $85,000 that had cost Rubins $60,000. Only 16% of the 20X1 purchases had not been sold to outsiders by the end of 20X1. Required: (A) What amount of unrealized intra-entity inventory profit should be deferred by Diehl at December 31, 20X0? (B) What amount of unrealized intra-entity profit should be deferred by Diehl at December 31, 20X1? (C) What amount of equity income would Diehl have recognized in 20X1 from its ownership interest in Rubins? (D) What was the balance in the Investment in Rubins Corp. account at December 31, 20X1?
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