Question
Parrot owns 35% of Target and uses the equity method of accounting. At the end of last year, the closing balance sheet showed the investment
Parrot owns 35% of Target and uses the equity method of accounting. At the end of last year, the closing balance sheet showed the investment as "Investment in Target $500,000"
The following business transactions occurred during the year. Identify how they would be reflected in Parrot's financial statements.
Target had sales of $60,000 to Parrot. Target's gross margin was 45%. Parrot sold $50,000 of these goods to external customers during the year but still had $10,000 in inventory at the end of the year.
Parrot had $20,000 sales to Target with a gross margin of 30%. At the end of the year, $6,000 of these goods were still in Target's inventory.
Target sold its land to Parrot for $450,000. The land had originally cost $300,000 and its fair value the date that Parrot acquired Target was $400,000. Target reported a gain of $150,000 on its income statement.
Target reported $100,000 income during the year and paid $20,000 dividends during the year.
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