Question
M, Inc., owns 30 percent of the outstanding stock of L Company and has the ability to significantly influence the investees operations and decision making.
M, Inc., owns 30 percent of the outstanding stock of L Company and has the ability to significantly influence the investees operations and decision making. On January 1, 2025, the balance in the Investment in L account is $365,000. Amortization associated with this acquisition is $12,600 per year. In 2025, L earns an income of $132,000 and declares cash dividends of $33,000. Previously, in 20204, L had sold inventory costing $33,600 to M for $56,000. M consumed all but 20 percent of this merchandise during 2024 and used the rest during 2025. L sold additional inventory costing $44,800 to M for $80,000 in 2025. M did not consume 40 percent of these 2025 purchases from L until 2026.
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What amount of equity method income would M recognize in 2025 from its ownership interest in L?
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What is the equity method balance in the Investment in L account at the end of 2025?
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