Question

Prince owns 30% of Watkins and applies the equity method. During the current year, Prince buys inventory costing $72,000 and sells it to Watkins for $120,000. At the end of the year, Watkins still holds 70,000 of the inventory. What amount of unrealized gross profit must Prince defer?

Answer 1

zero

Step-by-step explanation:

The sale is made downstream, from the investor company to the investee.

Also, is important to notice Prince hasn't controlling interest, it should has a subtancial participation on Watkinds but the mayority fothe shares are from third parties.

Therefore, there is no unrealized gross profit to defer as the sale was made between different entities.