_____ In its consolidated 2006 financial statements, Pozak recognized $37,000 of intercompany profit relating to upstream inventory sales from its 75%-owned subsidiary (Sozak). Of this amount, $7,000 pertained to intercompany profit deferred at 12/31/05. During 2006, downstream intercompany sales totaled $100,000 (Pozak's cost was $60,000). What amount was credited to Inventory in consolidation at 12/31/06? (Hint: Prepare the analysis of unrealized profit for the 2006 transfers-this is possible from the information given.)

Question

Quizplus · Accepted Answer

The unrealized profit from downstream sales is calculated as the difference between the sales price and cost, which is $100,000 - $60,000 = $40,000. Since Pozak owns 75% of Sozak, the unrealized profit attributable to Pozak is 75% of $40,000, which is $30,000. However, the question asks for the amount credited to Inventory, which is the unrealized profit from the downstream sales, $40,000, minus the $7,000 deferred from the previous year, resulting in $33,000. But since the question asks for the amount credited to Inventory, the correct answer is the unrealized profit from the downstream sales, which is $40,000. However, the correct choice is $10,000, which is the remaining unrealized profit after considering the $7,000 deferred from the previous year.

_____ in Its Consolidated 2006 Financial Statements, Pozak Recognized $37,000