Check Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the Investee's operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $335,000. Amortization associated with this acquisition is $9,000 per year In 2021, Lindman corns an income of \$90,000 and declares cash dividends of $30,000. Previously, in 2020, Lindman had sold inventory costing $24,000 to Matthew for $40,000. Matthew consumed all but 25 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $28,000 to Matthew for $50,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022. a. What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman

A. $16,560

B. $342,560

Explanation:

a. Calculation for What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman

2021 EQUITY INCOME

Equity income accrual 2021 $27,000

($90,000*3)

Amortization ($9,000)

Intra entity profit Recognized in 2020 transfer $1,200

($40,000*0.25*0.4*0.3)

Intra entity profit Deferred in 2021 transfer ($2,640)

($50,000*0.4*0.44*0.3)

2021 EQUITY INCOME $16,560

Calculation for gross profit rate on 2020 transfer

Gross profit rate=$16,000/$40,000

Gross profit rate=0.4

Calculation for gross profit rate on 2021 transfer

Gross profit rate=$22,000/$50,000

Gross profit rate=0.44

Therefore the amount of equity method income that Matthew would recognize in 2021 from its ownership interest in Lindman is $16,560

b. Calculation for What is the equity method balance in the Investment in Lindman account at the end of 2021

EQUITY METHOD BALANCE

Investment in Lindman (1/1/2021) $335,000

Equity income 2021 $16,560

Dividend 2021 (-$9,000)

($30,000*0.3)

Investment in Lindman (31/12/2021) $342,560

Therefore the equity method balance in the Investment in Lindman account at the end of 2021 will be $342,560

answer; ///i believe the correct answer is (350); (c) is your answer