Question

Additional sales were made to Larry by Bird in 2018; inventory costing $24,000 was transferred at a price of $40,000. Of this total, 30% was not consumed until 2019. Larry should record equity income in Worthy in 2018 of _______.

Answer 1

Answer:

$11,200

Explanation:

As not mentioned in the account. It is Assumed that the Larry and Bird are related parties and Bird made a sale at a transfer price of $40,000 with $24,000 cost of inventory.

Bird can only recognize the equity up to the ratio of inventory used or sold by the related party.

As 30% was not consumed then consumption will be 70%, so 70% of the income is realized and it will be recorded.

Equity Income = $40,000 - $24,000 = $16,000

Realized Equity income = $16,000 x 70% = $11,200

* There is some ambiguity in the question given.