Problem - Hager holds 30 percent of the outstanding shares of Jenkins and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $9000 per year. For 2010, Jenkins reported earnings of $80000 and pays cash dividends of $30000. During this year, Jenkins acquired inventory for $50000, which it then sold to Hager for $80000. At end of 2010, Hager continued to hold merchandise with a transfer price of $40000.
a) What Equity in Investee Income should Hager report for 2010?
b) How will the intra-entity transfer affect Hager's reporting in 2011?
c) If Hager had sold the inventory to Jenkins,how would the answers to (a)and(b) have changed?