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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

Answer & Explanation Solved by verified expert
3.9 Ratings (354 Votes)

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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