Problem 1-11 (LO 1-6)

Panner, Inc., owns 20 percent of Watkins and applies the equity method. During the current year, Panner buys inventory costing $138,750 and then sells it to Watkins for $185,000. At the end of the year, Watkins still holds only $29,100 of merchandise. What amount of unrealized gross profit must Panner defer in reporting this investment using the equity method?

$9,555.

$6,255.

$1,455.

$11,655.