Ariel owns 70% of Sabastian. During 2019, Sabastian sold 1000 units of Inventory to Ariel for...

Ariel owns 70% of Sabastian. During 2019, Sabastian sold 1000 units of Inventory to Ariel for $70 each. The units cost $50 to produce. A 12/31/2019 inventory count indicates that 300 units remained in Ariel's inventory. Sabastian reported a $50,000 net income in 2019 and a $70,000 net income in 2020. No internal sales were made in 2020. Ariel should recognize investment income in 2020 for which of the following amounts?

Investment in Sabastian $44,800

...Investment Income $44,800

Investment in Sabastian $49,000

...Investment Income $49,000

Investment in Sabastian $53,200

...Investment Income $53,200

Investment in Sabastian $63,000

...Investment Income $63,000

Solutions

Expert Solution

Working Notes:
	Calculation of inter company profit generated during the period

	Sales = (300 Units X $ 70)	$ 21,000

	Less: Cost of sales (3000 Units X $ 50)	$ 15,000

	Profit Generated on inter company sales	$ 6,000


Solution:
	CALCULATION OF INCOME COMPANY PROFIT RECOGNIZE IN THE YEAR 2020

	Net income reported by Sabastian	$ 70,000

	Less: Elimination of inter-company profit (Notes)	$ 6,000

	Actual Profit of Sabastian	$ 64,000

	Share of Ariel = $ 64,000 X 70% =	$ 44,800


Answer = Investment in Sabastian = $ 44,800

ekkarill92 answered 1 year ago

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