Assuming that X Inc. used the equity method, what adjustment would have to be made to the investment in Y account to adjust for any unrealized profits on Y's sales to X?

Question

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The adjustment required would be to reduce the investment in Y account by the unrealized profits on Y's sales to X. The unrealized profit for the current year would be (0.4 x $600) = $240. However, under the equity method, only 80% of this unrealized profit would be attributed to X Inc. since it owns 80% of Y Inc. Therefore, the adjustment required would be (0.8 x $240) = $192.

Assuming That X Inc