Answer:
A. Journal Entries:
Debit Investment in Investee $100,000
Credit Net Income $100,000
To record the investor's share in net income of investee.
Debit Net Income from Investee $25,000
Credit Investment in Investee $25,000
To record the dividends received.
Debit Net Income from Investee $9,000
Credit Investment in Investee $9,000
To record the unrealized gain on the unsold inventory.
B. Balance of the equity investment at the end of the year:
= $1,066,000
C. Equity income for the following year if all inventories are sold:
= $112,500
Explanation:
a) Investment in investee:
Beginning balance $1,000,000
Net income share 100,000
Dividends received (25,000)
Unrealized gain (9,000)
Ending balance $1,066,000
Equity Income for the following year when all inventories are sold = 25% of $450,000 = $112,500
