Route Manufacturing purchased 80 percent of the stock of Hampton Mines Inc. in 20X3. In preparing the
Question:
Route Manufacturing purchased 80 percent of the stock of Hampton Mines Inc. in 20X3. In preparing the consolidated financial statements at the end of 20X5, the controller of Route discovered that Route Manufacturing had purchased \(\$ 75.000\) of raw materials from Hampton Mines during the year and that the parent company had not paid for the last purchase of \(\$ 12,000\).
All the inventory purchased was still on hand at year-end. Hampton Mines had spent \(\$ 50,000\) in producing the items sold to Route Manufacturing.
\section*{Required}
a. What effect, if any, will failure to eliminate or adjust for these items have on total current assets reported in the consolidated balance sheet on December 31, 20X5?
\(b\). What effect, if any, will failure to eliminate or adjust for these items have on net working capital of the consolidated entity?
c. What effect, if any, will failure to eliminate or adjust for these items have on the computation of income when the inventory is sold in the following period?
Step by Step Answer:
Advanced Financial Accounting
ISBN: 9780072444124
5th Edition
Authors: Richard E. Baker, Valdean C. Lembke, Thomas E. King