Acker Inc Bought 40% of Howell Co

question 115

Multiple Choice

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year.What is Acker's share of the intra-entity inventory gross profit that should be deferred on December 31, 2020?

• A)$1,600.
• B)$4,000.
• C)$8,000.
• D)$15,000.
• E)$20,000.

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Definitions:

Federal Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or real yield on savings.

Secondary Reserves

Liquid assets held by financial institutions as a backup to primary reserves, used to meet unforeseen demands.

Government Securities

Financial instruments issued by a government to finance its fiscal deficit, including bonds, bills, and notes, which are considered low-risk investments.