McGuinn, Inc. owns a 40% interest in Cervantes Co., giving it representation on the investees board of directors. At the beginning of the year, the Equity Investment was carried on McGuinns balance sheet at $750,000. During the year, Cervantes reported net income of $240,000 and paid McGuinn a dividend of $48,000. In addition, McGuinn sold inventory to Cervantes , recording a gross profit of $60,000 on the sale. At the end of the year, 25% of the merchandise remained unsold by Cervantes .

Required:

A. Prepare the equity method journal entry to defer the unrealized inventory gross profit.

B. How much income should McGuinn report from Cervantes during the year?

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