Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 25

BuyCo holds 25 percent of the outstanding shares of Marqueen and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,000 per year. For 2012, Marqueen reported earnings of $100,000 and pays cash dividends of $30,000. During that year, Marqueen acquired inventory for $50,000, which it then sold to BuyCo for $80,000. At the end of 2012, BuyCo continued to hold merchandise with a transfer price of $32,000.
a. What Equity in Investee Income should BuyCo report for 2012
b. How will the intra-entity transfer affect BuyCo's reporting in 2013
c. If BuyCo had sold the inventory to Marqueen, how would the answers to ( a ) and ( b ) have changed