Problem

Matthew owns 30 percent of the outstanding stock of Lindman and has the ability to significantly influence the investee's operations and decision making. On January 1, 2015, the balance in the Investment in Lindman account is $385,000. Amortization associated with this acquisition is $17,500 per year. In 2015, Lindman earns an income of $115,500 and declares cash dividends of $38,500. Previously, in 2014, Lindman had sold inventory costing $32,800 to Matthew for $41,000. Matthew consumed all but 30 percent of this merchandise during 2014 and used the rest during 2015. Lindman sold additional inventory costing $45,600 to Matthew for $60,000 in 2015. Matthew did not consume 40 percent of these 2015 purchases from Lindman until 2016.

a. What amount of equity method income would Matthew recognize in 2015 from its ownership interest in Lindman?

b. What is the equity method balance in the Investment in Lindman account at the end of 2015?