Question

Rome Inc. owns 30% of Amber Co. and applies the equity method. During the current year, Rome bought inventory costing $66,000 and then sold it to Amber for $120,000. At year-end, only $24,000 of merchandise was still being held by Amber. What amount of intercompany inventory profit must be deferred by Rome

Answer 1

Amount of intercompany inventory profit must be deferred by Rome=$3240

Step-by-step explanation:

Inventory at year-end $ 24,000.00

Gross profit markup ($54,000 ÷ $120,000) × 0.45

Unrealized gain $ 10,800

Ownership share × 0.30

Intercompany unrealized gain — deferred $ 3,240