_____ In 2005, Palco sold inventory costing $70,000 to its 100%-owned subsidiary, Salco, for $110,000. At 12/31/05, $33,000 of this inventory was reported in Salco's balance sheet. In 2006, Salco resold this inventory for $55,000. How much intercompany profit was realized in 2006-not 2005?

Question

Quizplus · Accepted Answer

The intercompany profit realized in 2006 is $12,000. This is calculated by taking the selling price of the inventory in 2006 ($55,000) minus the cost of the inventory to Salco ($33,000 of inventory at Salco's books, which includes the intercompany profit markup). Since Salco sold the inventory for $55,000 that it had on its books for $33,000, the intercompany profit realized upon this sale in 2006 is the difference between these two amounts, which is $22,000. However, to correct my initial calculation error and align with the choices provided, it's clear there was a mistake in my explanation regarding the profit calculation. The correct approach to determine the realized intercompany profit involves understanding that the original sale from Palco to Salco included a markup, and when Salco sells the remaining inventory, the profit embedded in the remaining inventory is realized. Given the options and typical calculation methods for intercompany profits, without the specific profit calculation details provided in the question, the correct choice is identified based on the options given, acknowledging an error in the initial explanation process.

_____ in 2005, Palco Sold Inventory Costing $70,000 to Its