Question

Following are several figures reported for Allister and Barone as of December 31, 2018: Allister Barone Inventory $500,000 $300,000 Sales 1,000,000 800,000 Investment income not given Cost of goods sold 500,000 400,000 Operating expenses 230,000 300,000 Allister acquired 90 percent of Barone in January 2017. In allocating the newly acquired subsidiary’s fair value at the acquisition date, Allister noted that Barone had developed a customer list worth $78,000 that was unrecorded on its accounting records and had a 4-year remaining life. Any remaining excess fair value over Barone’s book value was attributed to goodwill. During 2018, Barone sells inventory costing $130,000 to Allister for $180,000. Of this amount, 10 percent remains unsold in Allister’s warehouse at year-end. What is Dec 31, 2018 balance of consolidated Inventory?
a. $975,000
b. $500,000
c. $795,000
d. $5,000
e. $300,000

Answer 1

Answer:

The correct option is C,$795,000

Explanation:

The consolidated inventory of Allister and Barone at year end 31st December is the sum of their individual inventories minus the allowance for unrealized profit on intra-group sales of $180,000

Allowance for unrealized =amount of unsold inventory/total sales*profit on sale

amount of unsold =10%*$180,000=$18,000

total profit on the sale=sales price-cost=$180,000-$130,000=$50,000

allowance for unrealized profit=$18,000/180,000*50,000=$5,000

Consolidated inventory=$500,000+$300,000-$5,000=$795,000