On January 1, 2021, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. 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, 2021, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2021, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of the inventory purchase price had been remitted to Pride by Strong at year-end. As of December 31, 2021, 60% of these goods remained in the company's possession.What is the consolidated total for inventory at December 31, 2021?
A)$336,000.
B)$280,000.
C)$364,000.
D)$347,200.
E)$349,300.

Question

On January 1, 2021, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong's stock. 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, 2021, before preparing the consolidated worksheet, the financial statements appeared as follows:  During 2021, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of the inventory purchase price had been remitted to Pride by Strong at year-end. As of December 31, 2021, 60% of these goods remained in the company's possession.What is the consolidated total for inventory at December 31, 2021?
A)$336,000. 
B)$280,000. 
C)$364,000. 
D)$347,200. 
E)$349,300.

Quizplus · Accepted Answer

The inventory balance will be eliminated in consolidation, as it is an intercompany transaction. The inventory purchase cost of $112,000 (which will be eliminated) plus the gross profit of $28,000 from the sale to Strong ($140,000 - $112,000) equals a consolidated total for inventory of $140,000. However, only 60% of the goods remain in Strong's possession, so the consolidated inventory balance at December 31, 2021 is $140,000 x 60% = $84,000.

Therefore, the consolidated total for inventory at December 31, 2021 is $84,000, which is closest to option D ($347,200 is not a possible option based on the information provided).