On January 1, 2011, 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, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows: During 2011, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of this purchase had been paid for by Strong by the end of the year. 60% of these goods were still in the company's possession on December 31.
-What is the consolidated total for inventory at December 31, 2011?
A) $336,000.
B) $280,000.
C) $364,000.
D) $347,200.
E) $349,300.

Question

On January 1, 2011, 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, 2011, before preparing the consolidated worksheet, the financial statements appeared as follows:  During 2011, Pride bought inventory for $112,000 and sold it to Strong for $140,000. Only half of this purchase had been paid for by Strong by the end of the year. 60% of these goods were still in the company's possession on December 31.
-What is the consolidated total for inventory at December 31, 2011?
A) $336,000. 
B) $280,000. 
C) $364,000. 
D) $347,200. 
E) $349,300.

Quizplus · Accepted Answer

To find the consolidated total for inventory at December 31, 2011, we need to first eliminate the intercompany transaction between Pride and Strong. Pride sold inventory to Strong for $140,000, which means that Strong's inventory should be increased by $140,000. However, only half of this purchase had been paid for by Strong at the end of the year, so we need to adjust Strong's accounts payable balance accordingly:
- Strong's inventory should be increased by $140,000 (the amount of inventory purchased from Pride)
- Strong's accounts payable should be decreased by $70,000 (half of the purchase has not been paid for)
- Pride's accounts receivable should be decreased by $70,000 (half of the purchase has not been paid for)

After making these adjustments, we can add up the inventory balances for both companies to get the consolidated total:
- Pride's inventory balance: $60,000
- Strong's adjusted inventory balance: $222,000 (original balance of $152,000 + $140,000 increase - $70,000 decrease)
- Consolidated total inventory: $282,000

Therefore, the correct answer is D) $347,200.