Companies A,B and C are all part of the one economic entity,but are all separate legal entities required to prepare their own financial statements.Company A sold Company B's inventory that cost $56,000 for $78,000.At the end of the same period Company B has three-quarters of that inventory still on hand and the rest has been sold to an entity outside the economic group.At what amount should the inventory remaining in Company B be recorded in Company B's own financial statements?
A) $42,000
B) $58 500
C) $56,000
D) $14 625
E) None of the given answers.

Question

Quizplus · Accepted Answer

Since Company A sold Company B's inventory for $78,000, Company B's revenue for that transaction is also $78,000. However, Company B's cost of goods sold for the inventory sold would be only three-quarters of the total cost of $56,000, which is $42,000. Therefore, Company B's gross profit for that transaction would be $36,000 ($78,000 - $42,000). The remaining inventory still belongs to Company B and should be recorded at its cost of $14,000 (one-quarter of $56,000). Thus, the total inventory remaining in Company B should be recorded at $56,000 - $42,000 + $14,000 = $28,000.

Companies A,B and C Are All Part of the One