Use the following information to answer the question(s)below.
Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value.At the time of purchase,the book value and fair value of Spillway's net assets were equal.The two companies report the following information for 2011 and 2012.
During 2011,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2011,30% of the inventory was unsold.In 2012,the remaining inventory was resold outside the consolidated entity.

-For 2011,consolidated net income will be what amount if the intercompany sale was downstream?
A)$180,000
B)$253,000
C)$256,000
D)$259,000

Question

Use the following information to answer the question(s)below.
Paggle Corporation owns 80% of Spillway Inc.'s common stock that was purchased at its underlying book value.At the time of purchase,the book value and fair value of Spillway's net assets were equal.The two companies report the following information for 2011 and 2012.
During 2011,one company sold inventory to the other company for $50,000 which cost the transferor $40,000.As of the end of 2011,30% of the inventory was unsold.In 2012,the remaining inventory was resold outside the consolidated entity.
 
-For 2011,consolidated net income will be what amount if the intercompany sale was downstream?
A)$180,000 
B)$253,000 
C)$256,000 
D)$259,000

Quizplus · Accepted Answer

B)
2011 Combined Net Income $256,000
Less: Unrealized Profit (above)(3,000)
2011 Consolidated Net Income $253,000

Use the Following Information to Answer the Question(s)below