Penmac owns 70% of the stock of snappy sales inc. During 2018 one company produced 5,000...

Penmac owns 70% of the stock of snappy sales inc. During 2018 one company produced 5,000 charis at a cost of $80 per chair and sold to the other company 3,000 chairs at $100 each. by year end the other company had sold 2,000 of the chairs at $130 each. These are the only sales either company made

1. what amount is on the 2018 consolidated balance sheet for ending inventory?

2. If the intercompany sales were upstream, how much gross profit would be denied to Penmac?

3. If the intercompany sales were downstream, how much gross profit would be denied to Penmac?

Solutions

Expert Solution

1. The amount of ending Inventory on the 2018 consolidated balance sheet for ending inventory are:

3000 * 80 = $240,000.

2. If the intercompany sales were upstream, Penmac would denied unrealized profit of $20,000.

3. If the intercompany sales were downstream, Penmac would denied unrealized profit of $20,000.

Note that unrealized intercompany gains and losses are always fully eliminated in preparing consolidated financial statements. Only allocation happens between noncontrolling Interest and controlling Interest.

ekkarill92 answered 2 years ago

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