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 Equity in Maya Income that should be reported by Cayman in 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 Equity in Maya Income that should be reported by Cayman in 2014?

Quizplus · Accepted Answer

$120,000 × 30% = $36,000 + ($900 from 2013) - ($2,400 from 2014 Deferral) = $34,500