Potter Company acquired 75 percent ownership of Snape Corporation in 20X5,at underlying book value.On that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snape Corporation.Potter purchased inventory from Snape for $150,000 on July 24,20X6,and resold 90 percent of the inventory to unaffiliated companies on November 11,20X6,for $160,000.Snape produced the inventory sold to Potter for $120,000.The companies had no other transactions during 20X6.
-Based on the information given above,what inventory balance will be reported by the consolidated entity on December 31,20X6?

Question

Quizplus · Accepted Answer

The consolidated entity will report the remaining 10% of the inventory that was not sold by Potter, which was originally purchased for $150,000. Since 90% was sold, 10% remains, equating to $15,000 (10% of $150,000). However, this inventory was produced by Snape for $120,000, meaning the original 10% cost to produce the remaining inventory is $12,000 (10% of $120,000). Therefore, the consolidated inventory balance is $12,000, reflecting the cost to produce the remaining inventory, not its sale price or transfer price between the entities.

Potter Company Acquired 75 Percent Ownership of Snape Corporation in 20X5,at