Elvis Company purchases inventory for $70,000 on Mar 19, 20X8 and sells it to Graceland Corporation for $95,000 on May 14, 20X8. Graceland still holds the inventory on December 31, 20X8, and determines that its market value (replacement cost) is $82,000 at that time. Graceland writes the inventory down from $95,000 to its lower market value of $82,000 at the end of the year. Elvis owns 75 percent of Graceland.
-Based on the information given above,by what amount should Graceland write down inventory in its books?

Question

Quizplus · Accepted Answer

The initial cost of inventory was $70,000.

When sold to Graceland Corporation for $95,000, the gain on sale was $25,000 ($95,000 - $70,000).

However, at the end of the year, Graceland determined that the market value of the inventory had decreased to $82,000.

This means that Graceland had to write down the value of the inventory by $13,000 ($95,000 - $82,000).

Since Elvis owns 75% of Graceland, the portion of the write-down that applies to Elvis is 75% x $13,000 = $9,750.

Therefore, the answer is C, $13,000.

Elvis Company Purchases Inventory for $70,000 on Mar 19, 20X8