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Equity Method Practice Test

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Q1

ABC Company uses the equity method to account for its investment in DEF Co common stock. How should ABC record a 3% stock dividend received from DEF?

Greg Company owns 75% of George Company's common stock. During the 3rd quarter of the current year, George sold inventory to Greg for \$100,000. At the end of the current year, half of this purchase remains in Greg's inventory. For the current year, Greg's gross profit margin was 25% and George's gross profit margin was 40%. How much unrealized profit should be eliminated from ending inventory at year-end?

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