Cayman Inc. bought 30% of Maya Company on January 1, 2013 for $450,000. The equity method of accounting was used. The book value and fair value of the net assets of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as follows: Maya reported net income of $100,000 in 2013 and $120,000 in 2014 while paying $40,000 in dividends each year.
What is the amount of unrealized inventory profit to be deferred on December 31, 2014?

Question

Cayman Inc. bought 30% of Maya Company on January 1, 2013 for $450,000. The equity method of accounting was used. The book value and fair value of the net assets of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as follows:  Maya reported net income of $100,000 in 2013 and $120,000 in 2014 while paying $40,000 in dividends each year.
What is the amount of unrealized inventory profit to be deferred on December 31, 2014?

Quizplus · Accepted Answer

$80,000 - $48,000 = $32,000 × ($20,000/$80,000) = $8,000 × 30% = $2,400 Deferred Profit