Diller owns 80% of Lake Company common stock.During October 2016, Lake sold merchandise to Diller for $300,000.On December 31, 2016, one-half of this merchandise remained in Diller's inventory.For 2016, gross profit percentages were 30% for Diller and 40% for Lake.The amount of unrealized profit in the ending inventory on December 31, 2016 that should be eliminated in consolidation is ____.
A)$80,000
B)$60,000
C)$32,000
D)$30,000

Question

Diller owns 80% of Lake Company common stock.During October 2016, Lake sold merchandise to Diller for $300,000.On December 31, 2016, one-half of this merchandise remained in Diller's inventory.For 2016, gross profit percentages were 30% for Diller and 40% for Lake.The amount of unrealized profit in the ending inventory on December 31, 2016 that should be eliminated in consolidation is ____.
A)​$80,000
B)​$60,000
C)​$32,000
D)​$30,000

Quizplus · Accepted Answer

The unrealized profit is calculated on the portion of inventory still held by Diller. Since Lake's gross profit percentage is 40%, the unrealized profit on the $150,000 (half of $300,000) remaining inventory is $150,000 * 40% = $60,000.

Diller Owns 80% of Lake Company Common Stock