Panner, Inc., owns 40 percent of Watkins and applies the equity method. During the current year, Panner buys inventory costing $57,750 and then sells it to Watkins for $105,000. At the end of the year, Watkins still holds only $23,500 of merchandise. What amount of gross profit must Panner defer in reporting this investment using the equity method?

Multiple Choice

• $7,230.
• $12,330.
• $12,930.
• $4,230.