PRI has a 40 percent interest in NCE, a joint venture. During
Year 5, NCE reported...
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Accounting
PRI has a 40 percent interest in NCE, a joint venture. DuringYear 5, NCE reported net income of $100,000 and paid a dividend of$60,000. NCE’s inventory includes goods purchased from PRI on whichPRI had made a profit of $10,000. What amount of income should PRIreport on its investment in NCE for Year 5 under the equity method?(Ignore income taxes.)
A. $24,000
B. $30,000
C. $36,000
D. $40,000
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SOLUTION:
Calculation of Amount of
income Should PRI report
Net income of NCE
$
100,000
Holding % of PRI
$
0
Investment Revenue = $ 100,000 X
40%
$
40,000
Less: Adjustment of intergroup profit
on inventory
Profit on inventory in
hand
$
10,000
Share of NCE in these profit = 40% of
$ 10,000
$
4,000
Adjustment in Holding profit of
NCE
$
4,000
Net Reportable profit of
PRI
$
36,000
Answer = Option C = $
36,000
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