REFERENCE: Ref.05_02
On January 1,2009,Pride,Inc.bought 80% of the outstanding voting common stock of Strong Corp.for $364,000.Of this payment,$28,000 was allocated to equipment (with a five-year life)that had been undervalued on Strong's books by $35,000.Any remaining excess was attributable to goodwill which has not been impaired.
As of December 31,2009,before preparing the consolidated worksheet,the financial statements appeared as follows:
During 2009,Pride bought inventory for $112,000 and sold it to Strong for $140,000.Only half of this purchase had been paid for by Strong by the end of the year.60% of these goods were still in the company's possession on December 31.
-What is the consolidated total for inventory at December 31,2009?

Question

REFERENCE: Ref.05_02
On January 1,2009,Pride,Inc.bought 80% of the outstanding voting common stock of Strong Corp.for $364,000.Of this payment,$28,000 was allocated to equipment (with a five-year life)that had been undervalued on Strong's books by $35,000.Any remaining excess was attributable to goodwill which has not been impaired.
As of December 31,2009,before preparing the consolidated worksheet,the financial statements appeared as follows:
  During 2009,Pride bought inventory for $112,000 and sold it to Strong for $140,000.Only half of this purchase had been paid for by Strong by the end of the year.60% of these goods were still in the company's possession on December 31.
-What is the consolidated total for inventory at December 31,2009?

Quizplus · Accepted Answer

To determine the consolidated total for inventory at December 31, 2009, we first need to eliminate the intercompany transaction between Pride and Strong. Pride bought inventory for $112,000 and sold it to Strong for $140,000. Since only half of this purchase had been paid for by Strong by the end of the year, we must eliminate $70,000 from the consolidated inventory. Also, 60% of these goods were still in the company's possession on December 31, which means that we must adjust the inventory by $84,000 (60% x $140,000).
Therefore, the consolidated total for inventory at December 31, 2009, is calculated as follows:
Inventory purchase by Pride = $112,000
Intercompany sale to Strong = $140,000
Elimination of intercompany sale = ($70,000)
Adjustment for inventory still in possession by Strong = $84,000
Consolidated inventory at December 31, 2009 = $280,000 (Choice B)

REFERENCE: Ref.05_02 On January 1,2009,Pride,Inc.bought 80% of the Outstanding Voting Common Stock