Acker Inc Bought 40% of Howell Co Howell Reported Net Income of $100,000 in 2012 and $120,000

question 76

Multiple Choice

Acker Inc. bought 40% of Howell Co. on January 1, 2012 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: $\begin{array}{llll}& \text { Cost to } & \text { Transfer } & \text { Amount Held by } \\\text { Year } & \text { Acker } & \text { Price } & \text { Howell at Year-End }\\\hline2012 & \mathbf{\$} 55,000 & \$ 75,000 & \$ 15,000 \\2013 & \$ 70,000 & \$ 110,000 & \$ 55,000\end{array}$ Howell reported net income of $100,000 in 2012 and $120,000 in 2013 while paying $40,000 in dividends each year. What is the amount of unrealized intra-entity inventory profit to be deferred on December 31, 2013?

• A)$1,600.
• B)$8,000.
• C)$15,000.
• D)$20,000.
• E)$40,000.

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Definitions:

Underlying Asset

The financial asset upon which a derivative instrument, such as an option or a futures contract, is based.

Floating-Rate Debt

Floating-rate debt is a type of loan or security that has a variable interest rate, which adjusts periodically based on a benchmark or index rate.

Market Value

The current price at which an asset or service can be bought or sold in a public market.

Historical Cost

The original financial value of an asset or investment at the time of its acquisition.