During 2018, Serenity Corp., a 90%-owned subsidiary, sold inventory to Patience, Inc. (its parent) for $800,000; the inventory originally had cost Serenity $500,000. By the end of 2018, only one-fourth of the inventory had been resold to unrelated parties. For 2018, the two companies reported the following:

Operating income of Patience (excluding $900,000

earnings from Serenity)

Net income of Serenity $500,000

Total $1,400,000

Think through, and maybe write out, for yourself, the elimination JE needed. Then answer the questions.

9. What is the amount of the unrealized inter-company profit at the end of 2018?

a. $200,000 b. $225,000 c. $112,500 d. $487,500

10. By what amount should inventory be reported in the December 31, 2018 consolidated balance sheet?

a. $375,000 b. $275,000 c. $500,000 d. $600,000

11. By what amount should sales be adjusted in the 2018 consolidation worksheet as a result of the inter-company sale?

a. $500,000 increase b. $300,000 decrease

c. $800,000 increase d. $800,000 decrease

12. What adjustment to cost of goods sold should appear in the 2018 consolidation worksheet as a result of the inter-company sale?

a. $500,000 credit b. $187,500 credit

c. $575,000 credit d. $225,000 debit

13. The income assigned to the non-controlling interest for 2018, following the upstream sale of inventory, is:

a. $42,500. b. $50,000. c. $27,500. d. $30,000.