Use the following information to answer the question(s) below.

Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015.

During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity.

-If the intercompany sale mentioned above was an upstream sale,what will be the reported amount of total consolidated sales revenue for 2015?
A)$1,025,000
B)$1,900,000
C)$1,950,000
D)$2,000,000

Question

Use the following information to answer the question(s) below.

Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value. At the time of purchase, the book value and fair value of Spillway's net assets were equal. The two companies report the following information for 2014 and 2015.

During 2014, one company sold inventory to the other company for $50,000 which cost the transferor $40,000. As of the end of 2014, 30% of the inventory was unsold. In 2015, the remaining inventory was resold outside the consolidated entity.
 
-If the intercompany sale mentioned above was an upstream sale,what will be the reported amount of total consolidated sales revenue for 2015?
A)$1,025,000 
B)$1,900,000 
C)$1,950,000 
D)$2,000,000

Quizplus · Accepted Answer

The correct answer is A.In an upstream sale, the subsidiary sells to the parent company. The parent company then sells the goods to an external customer. In this case, the subsidiary's sale to the parent company is eliminated in consolidation, and only the parent company's sale to the external customer is included in consolidated sales revenue. Therefore, the reported amount of total consolidated sales revenue for 2015 is $1,025,000.

Use the Following Information to Answer the Question(s) Below