Spa Corporation is a 90 percent owned subsidiary of Ply Corporation, acquired on January 1, 2011, at a price equal to book value and fair value. Ply accounts for its investment in Spa using the equity method of accounting.
The only intercompany transactions between the two affiliates in 2011 and 2012 are as follows:
|
2011 |
Ply sold inventory items that cost $400,000 to Spa for $500,000. One fourth of this merchandise remains unsold at December 31, 2011 |
|
2012 |
Ply sold inventory items that cost $600,000 to Spa for $750,000. One third of this merchandise remains unsold at December 31, 2012 |
At December 31, 2012, Ply’s Investment in Spa account:
a Will equal its underlying equity in Spa
b Will be $25,000 greater than its underlying equity in Spa
c Will be $50,000 less than its underlying equity in Spa
d Will be $25,000 less than its underlying equity in Spa