Ask Question
8 December, 18:15

P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000. At the end of the current year, one-third of the merchandise remains in S Company's inventory. Applying the lower-of - cost-or-market rule, S Company wrote this inventory down to $92,000. What amount of intercompany profit should be eliminated on the consolidated statements workpaper?

+2
Answers (1)
  1. 8 December, 18:39
    0
    Inter-company profit eliminated = $12,000

    Explanation:

    Given:

    Value of inventory = $300,000

    Cost of inventory = $240,000

    Computation of Profit recognized on sale profit

    Profit recognized on sale = Value of inventory - Cost of inventory

    Profit recognized on sale = $300,000 - $240,000

    Profit recognized on sale = $60,000

    Computation of Profit margin:

    Profit margin = [60000/300000]*100 = 20%

    Profit margin = 20% = 0.20

    Computation of closing Inventory:

    Closing Inventory = $300,000 (1/3)

    Closing Inventory = $100,000

    Profit during the year = $ 92,000

    Value of inventory = $100,000 (1-0.20) = $80,000

    Inter-company profit eliminated = $92,000 - $80,000 = $12,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000. At the end of the current year, one-third of the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers