Equity method journal entries with intercompany sales of inventory

An investor owns 25% of an investee, and accounts for its investment using the equity method. At the beginning of the year, the Equity Investment was reported on the investor's balance sheet at $1,000,000. During the year, the investee reported net income of $400,000 and paid dividends of $100,000. In addition, the investor sold inventory to the investee, realizing a gross profit of $120,000 on the sale. At the end of the year, 30% of the inventory remained unsold by the investee.

a. Provide the equity method journal entries required for the year

Description	Debit	Credit
AnswerAdditional paid-in-capitalCashCommon stockEquity incomeEquity investment	Answer	Answer
AnswerAdditional paid-in-capitalCashCommon stockEquity incomeEquity investment	Answer	Answer
To record the recognition of equity income.
AnswerAdditional paid-in-capitalCashCommon stockEquity incomeEquity investment	Answer	Answer
AnswerAdditional paid-in-capitalCashCommon stockEquity incomeEquity investment	Answer	Answer
To record deferred profits in ending inventory.
AnswerAdditional paid-in-capitalCashCommon stockEquity incomeEquity investment	Answer	Answer
AnswerAdditional paid-in-capitalCashCommon stockEquity incomeEquity investment	Answer	Answer
To record receipt of dividends.

b. What is the balance of the Equity Investment at the end of the year?

$Answer

c. Assume that the inventories are all sold in the following year, that the investee reports $450,000 of net income. How much equity income will the investor report for the following year?

$Answer