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Lauralee, Inc. owns a 30% interest in Eastwood Co., giving it representation on the investees board of directors. At the beginning of the year, the
Lauralee, Inc. owns a 30% interest in Eastwood Co., giving it representation on the investees board of directors. At the beginning of the year, the Equity Investment was carried on Lauralees balance sheet at $500,000. During the year, Eastwood reported net income of $250,000 and paid Lauralee a dividend of $50,000. In addition, Lauralee sold inventory to Eastwood, recording a gross profit of $20,000 on the sale. At the end of the year, 50% of the merchandise remained unsold by Eastwood.
Required:
- Prepare the equity method journal entry to defer the unrealized inventory gross profit.
- How much equity income should Lauralee report from Eastwood during the year?
- What is the balance in the Equity Investment at the end of the year?
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