The following information pertains to questions
X Inc.owns 80% of Y Inc.During 2009,X Inc sold inventory to Y for $10,000.Half of this inventory remained in Y's warehouse at year end.Half of this inventory remained in Y's warehouse at year end.Also during 2009,Y Inc sold Inventory to X Inc.for $5,000.40% of this inventory remained in X's warehouse at year end.Both companies are subject to a tax rate of 50%.The gross profit percentage on sales is 20% for both companies.Unless otherwise stated,assume X Inc.uses the cost method to account for its Investment in Y.Inc.
-What is the after-tax dollar value of Y's unrealized profits during the year on its sales to X?

Question

Quizplus · Accepted Answer

Y Inc.'s unrealized profit on sales to X Inc. is calculated as follows: $5,000 (sales to X) x 40% (inventory remaining) x 20% (gross profit percentage) = $400. After accounting for the 50% tax rate, the after-tax unrealized profit is $400 x (1 - 0.50) = $200.

The Following Information Pertains to Questions