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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 realized profits during the year on its sales to X?

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Quizplus · Accepted Answer

Y's sales to X were for $5,000 and the gross profit percentage is 20%, therefore Y earned a gross profit of $1,000 ($5,000 x 20%). Since 40% of the inventory remained in X's warehouse at year-end, Y's realized profit on this sale would be $400 ($1,000 x 40%). 
However, Y Inc. is subject to a tax rate of 50%, so their after-tax profit on this sale would be $200 ($400 x 50%).

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