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An investor company owns 30% of the common stock of an investee company. The investor has significant influence over the investee. During the year ended December 31, 2019, the investee bought $100,000 of inventory from the investor. The investor includes gross profit of 40% on all inventory sales transactions. At December 31, 2019, the investee held $200,000 of total inventory, with $20,000 of this inventory purchased from the investor during 2019. For the year ended December 31, 2019, the investor and investee reported $90,000 and $40,000, respectively, of net income. What amount of investment income from the investee did the investor recognize during the year ended December 31, 2019? Select one: a. $14,400 b. $9,600 c. $8,000 d. $12,000

User Grindking
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Answer:

Correct Answer is B.

$9600

Step-by-step explanation:

Net income from investment equity= $40000*30%= $12000

Less: Un-realized gain on interco inventory= ($20000*40%)*30%= $2400

Investment income from investee= $12000-$2400= $9600

User Filou
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