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

Question

Quizplus · Accepted Answer

Sonny Corporation should write down the inventory by the difference between the original cost ($70,000) and the market value ($82,000), which is $12,000. However, since Padre Company owns 75% of Sonny, there is a $9,000 impact on Padre's financial statements (75% x $12,000). Therefore, the correct amount that Sonny should write down in its books is $12,000 - $9,000 = $3,000. This matches option C.

Padre Company Purchases Inventory for $70,000 on Mar 19,20X8 and Sells