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What is the impact on equity in net income

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Question - Exeter Company acquires 35% of the voting stock of Fenton Corporation for $7,000,000 on January 1, 2020. At the time, the book value of Fenton was $20,000,000. During 2020, Fenton reported net income of $3,000,000 and declared and paid dividends of $500,000. Both companies have December 31 year-ends, and the fair value of the investment at year-end was $9,000,000. Exeter uses the equity method to report its investment in Fenton stock.

Now assume Exeter's 2020 ending inventory contains $125,000 in merchandise purchased from Fenton, at a markup of 25% on cost. What is the impact on 2020 equity in net income?

Reference no: EM132537977

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