Free Solved Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making.


It is asked in the question that Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $427,000. Amortization of excess fair value associated with the 30% ownership is $9,600 per year. In 2021, Lindman earns an income of $145,000 and declares cash dividends of $72,500. Previously, in 2020, Lindman had sold inventory costing $41,600 to Matthew for $52,000. Matthew consumed all but 25 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $60,800 to Matthew for $80,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022.

  1. What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman?
  2. What is the equity method balance in the Investment in Lindman account at the end of 2021?

 

Step 1 of 2

According to question, Matthew, owns 30 % of the outstanding stock of “Lindman” and has the ability to significantly influence the investee’s operations and decision making and on January 1, 2021, the balance in the Investment in “Lindman” account is$427,000. Amortization of excess fair value associated with the 30%ownership is $9,600 per year and In 2021, “Lindman” earns an income of $145,000 and declares cash dividends of $72,500. in 2020, “Lindman” had sold inventory costing $41,600 to Matthew for$52,000. Matthew consumed all but 25% of this merchandise during 2020 and used the rest during 2021. “Lindman” sold additional inventory costing $60,800 to Matthew for$80,000 in 2021. Matthew did not consume 40% of these 2021 purchases from Lindman until 2022.

Based on the given situation, the amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman, is to be determined and also it is determined that, what is the equity method balance in the investment in Lindman account at the end of 2021?

Explanation:

Matthew owns 30% of the outstanding stock of Lindman. and based on the situation, to assess the financial impact of Matthew’s investment in Lindman company using the equity method .

 

Step 2 of 2

1) Equity method income in 2021 :

Matthew’s share of Lindman’s income for 2021, which is $145,000 of 30%,is to be calculated-

Lindman’s income for 2021: $145,000

Amortization of excess fair value : $9,600

Matthew’s share of Lindman’s income for 2021 =145,000×30100

Matthew’s share of Lindman’s income for 2021 = 43,500

The total equity method income for 2021 = 43,500−9,600

The total equity method income for 2021 = 33,900

2) Equity method balance at the end of 2021:

Beginning Balance in the investment in Lindman account on January 1, 2021 $427000
+ equity method income $33,900
– Matthew’share of Lindman’declared dividends $21750
The final equity method balance at the end of 2021 $439,150

working Note:

Matthew’ share of Lindman’ declared dividends=$72,500×30%

Matthew’ share of Lindman’ declared dividends = $21,750

Explanation:

the equity method income is calculated by computing the percentage that is owned 30% of Lindman and the net income of Lindman is $145,000.The total equity method income for 2021 is computed from the outcome value of 30% of $145,000 .and the final equity method balance at the end of 2021 is computed by adding the beginning balance of 2021 that was 427,000 with equity method income and subtract the Matthew’share of Lindman’ declared dividends.

 

 

 

 

Final solution

1) The total equity method income for 2021 = 33,900

2) The final equity method balance at the end of 2021 = $439150

 

 

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