Use the following information to answer the question(s)below..
Pelga Company routinely receives goods from its 80%-owned subsidiary,Swede Corporation.In 2011,Swede sold merchandise that cost $80,000 to Pelga for $100,000.Half of this merchandise remained in Pelga's December 31,2011 inventory.This inventory was sold in 2012.During 2012,Swede sold merchandise that cost $160,000 to Pelga for $200,000.$62,500 of the 2012 merchandise inventory remained in Pelga's December 31,2012 inventory.Selected income statement information for the two affiliates for the year 2012 was as follows:

-What amount of unrealized profit did Pelga Company have at the end of 2012?
A)$10,000
B)$12,500
C)$50,000
D)$62,500

Question

Use the following information to answer the question(s)below..
Pelga Company routinely receives goods from its 80%-owned subsidiary,Swede Corporation.In 2011,Swede sold merchandise that cost $80,000 to Pelga for $100,000.Half of this merchandise remained in Pelga's December 31,2011 inventory.This inventory was sold in 2012.During 2012,Swede sold merchandise that cost $160,000 to Pelga for $200,000.$62,500 of the 2012 merchandise inventory remained in Pelga's December 31,2012 inventory.Selected income statement information for the two affiliates for the year 2012 was as follows:
 
-What amount of unrealized profit did Pelga Company have at the end of 2012?
A)$10,000 
B)$12,500 
C)$50,000 
D)$62,500

Quizplus · Accepted Answer

Unrealized profit is the profit that was made by Swede Corporation on the merchandise sold to Pelga, but has not been realized because the merchandise is still in Pelga's inventory at the end of the year. 
For 2012, Swede sold merchandise that cost $160,000 to Pelga for $200,000. Therefore, the realized profit for Swede is $40,000 ($200,000 - $160,000). 
Pelga still has $62,500 of the 2012 merchandise inventory remaining in its December 31, 2012 inventory. Since Swede's profit on this inventory has not been realized yet, Pelga has an unrealized profit of $12,500 ($62,500 x 20%). 
Therefore, the correct answer is B) $12,500.

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